"Reserve Bank of India Prioritizes Macro Stability Amid Global Risks"

At a recent speech at the New York Fed's Central Banking Seminar, Reserve Bank of India (RBI) Deputy Governor Michael Patra highlighted the importance of strengthening India’s macroeconomic fundamentals as a strategic defense against rising global uncertainties. Patra noted that India's exports and imports have been adversely affected during times of heightened geopolitical risk.

According to Patra, the RBI is proactively increasing its foreign exchange reserves, which currently cover the nation's external debt, all debt service obligations, and nearly the equivalent of 12 months of import costs. This approach forms part of the central bank's strategy to bolster the country's economic resilience.

The Deputy Governor presented an optimistic outlook for the Indian economy, forecasting a real GDP growth rate of 7.2% for the 2024/25 fiscal year and approximately 7% for the following year. Patra envisioned a potential return to an 8% growth trend after these periods.

However, inflation in India remains a challenge, as it rose above the RBI's 4% target in September after dropping below it in July and August. The increase in inflation is attributed to rising prices of certain food items and adverse base effects in annual measurements.

Patra indicated that the central bank expects these inflationary pressures to persist in October and November but anticipates alignment with the target from December 2024 and in the 2025/26 fiscal year.

The Deputy Governor also discussed the dilemma faced by monetary policy in scenarios where uncertainty leads to slower economic growth alongside higher inflation. This situation creates a conflict over whether to tighten policies to control inflation or ease them to stimulate growth.

The RBI has kept interest rates unchanged across ten consecutive meetings. However, there is an expectation that the central bank may potentially begin lowering interest rates as part of its monetary policy adjustments in early 2025.