There has to be coordination between the monetary authority (RBI) and the fiscal authority (government), RBI governor Shaktikanta Das said at the Hindustan Times Leadership Summit on Saturday.
Elaborating on the issue of the autonomy of central banks, Das said the government needs the Reserve Bank for financial inclusion and digital payments among other things. He, however, added that the RBI also needs the government for legislative amendments.
“Let me also mention that many legislative changes which have been carried out over the last three or four years, we got additional power to deal with NBFCs, we got additional powers to deal with the problem of urban cooperative banks,” Das said.
When asked whether India’s inflation target needs to be revised upwards from the current 4%, the RBI governor said that the current band “makes a lot of economic sense and we should not think of shifting the goal post because we have not been able to meet it.”
“Internal committee of RBI did a detailed analysis and found the 4% inflation target with a band of 2%. RBI research at that point of time found, and even now it holds good, that inflation for India would be detrimental to growth,” he said.
On the question of the need for market intervention by RBI, Das said India’s foreign exchange is at a “very comfortable” level.
“The first objective of our market intervention in the forex market is to ensure an ordely movement of the exchange rate. The second is to anchor market expectations. If the RBI doesn’t intervene, market takes it as rupee will just depreciate and RBI is indifferent and agnostic to it. That will fuel further depreciation.
The third objective, he said, is to maintain financial stability which requires the stability of the exchange rate system.
On the Indian economy, Das said the macroeconomic fundamentals remain strong and growth prospects are looking good.
“We expect the October number which will be released on Monday to be lower than 7 per cent. Inflation is a matter of concern with which we are now dealing and dealing effectively,” he said.