Following rapid increases in the policy repo rate by a cumulative 250 basis points from May 2022 to February 2023 to cool inflation, the RBI has held rates steady since. One basis point is a hundredth of a percentage point.
“I’m not giving any forward guidance or indication so far as the next monetary policy is concerned, which is coming up on December 8. But I would just like to slightly deviate and just explain to you our approach,” Das said at the FIBAC 2023 conference in Mumbai. Das then went on to provide two parallels related to Arjuna, one of the protagonists of the Mahabharata.
In the first, the governor spoke of the passage from the epic in which Arjuna and other princes are instructed to hone their archery skills by taking aim at a wooden bird. “It was only Arjuna who said that I only see the eye of the parrot. So, the child Arjuna was completely focused on the target. Like that the central bank is completely focused on the (inflation) target,” Das said, reiterating the RBI’s focus in bringing inflation down to its 4% goal.
FACTORS BEYOND INFLATION
Das then related another passage from the Mahabharata in which Arjuna was pressed to display his archery skills by shooting a revolving target by looking at its reflection in the water. Here, Das spoke about the importance of considering other factors while achieving a target. “He (Arjuna) had to also completely focus on the eye of the fish because he had to hit the eye of the fish hanging upside down. But at the same time, he had to see through the eye of the water and there were ripples in the water. So, he had to be mindful of the ripples in the water, the wind factor and so on,” Das said. “So, while being focused on the target and committed to hit the target, he was also factoring in the other conditions which would enable him to hit the target. Like that, the Reserve Bank is completely focused on achieving the (inflation) target, but we do consider several other factors which play their role in determining our policy decisions,” he said.
The conference, where Das spoke Wednesday, is India’s biggest platform promoting interaction between industry and banks in the country.
Das’ comments come in a global economic environment clouded by military conflicts and volatile financial market and commodity price movements following the most aggressive US tightening cycle in decades. Moreover, while headline retail inflation in India has recently eased to a shade below 5%, Das spoke of the tremendous volatility that food inflation can impart to headline inflation.“Having said that, I also mentioned that core inflation has softened, and I think that is demonstrative- somewhere I think that gives us the conviction that monetary policy seems to be working,” he said.
PRICE STABILITY & GROWTH
The RBI’s preamble puts the inflation objective first by saying that the central bank seeks to maintain price stability while keeping in mind the objective of growth.
In 2020, during the Covid-19 pandemic crisis, however, the central bank said that it would maintain an accommodative policy stance as long as needed to revive growth while ensuring that inflation remains within the target. It was in April 2022 that the RBI went back to putting inflation ahead of growth in its policy stance.
Since then, Das has several times used the Arjuna analogy to clearly state that the RBI’s focus is to bring inflation to 4% and not just within its tolerance band of 2-6%. On most occasions, however, he has referred to ‘Arjuna’s eye’ as a means to drive home the inflation focus, without expanding its theme.