View: RBI strikes a right balance between growth and inflation

Governor Shaktikanta Das announced a 50-bps hike in policy repo rate to 5.9% from 5.4% during the monetary policy committee’s meeting on 30th September 2022 and maintained withdrawal of accommodation. With this, the rates have gone up 190-bps cumulatively since the start of the current calendar year. The rate hike was decided by a majority of 5 out of 6 members. The policy pegged India’s GDP growth at 7% during the financial year 2023 and maintained inflation at 6.7% for the same period. Going forward, RBI will remain resolute and continue with its efforts to ensure price stability as well as financial stability, while supporting growth.

The RBI stressed on the world economy going through turbulent times owing to high inflation, volatility in currency markets and geopolitical events impacting world economic growth. Emerging markets face challenges of currency depreciation, growth and inflation. Given this backdrop, the governor reassured India’s resilience in the entire mayhem of the global economy. India has been tackling inflation in the past which has resulted in preparing ourselves to keep it under check by various policy measures, both from the central bank and the government of India.

The rate hike was on expected lines and ensures rates do not spike up. This would enable striking a right balance between supporting growth and keeping inflation under control. It will also help drive future economic growth prospects for India.

The resilience in bond market and investment behaviour has been unparalleled despite the global uncertainty. The reassurance of spending by the government will potentially help bring back liquidity and further boost sentiment during these uncertain times.

India’s central bank acknowledged mounting global recession fears and that inflation continued to persist at alarmingly high levels. However, a key focus area to maintain orderly movement in currency, interest rate liquidity and bond yields would be the emergence of global volatility. Another focus area would be to watch out for further currency depreciation in order to align with the global backdrop and ensure that exports do not suffer too much.

Overall, I would rate the RBI policy as the best among the recent global central banks’ actions which are focussed on steep rate hikes to control inflation. India has done a remarkable job in maintaining all macro parameters and keep up the economic growth revival ahead of the festive season. Going forward, I continue to remain bullish on India’s economic revival supported by a stable interest rate environment. Indian corporate balance sheets are best positioned with respect to having controlled debt levels; hence equity investors would view this as the biggest comfort factor while betting on equity markets.

The writer is CEO, ADITYA BIRLA AMC