India’s RBI not behind the curve with easy policy, says official

Bloomberg

India’s central bank has not fallen behind the curve, having maintained an easy monetary policy stance even as other economies across the world have started tightening, a top official said.
“India held its ground and is among a few countries that have retained an accommodative monetary policy, despite some views that we have fallen behind the curve,” Reserve Bank of India (RBI) Deputy Governor Michael D. Patra said in a speech. “This approach has served us well and helped in charting a course into the future which is different from the world.”
The RBI’s signalling of a continued tilt toward an easy monetary policy comes days after the Federal Reserve set a more hawkish tone towards tackling the hottest inflation in a generation, a path most global peers will need to follow.
A huge buffer of over $630 billion in foreign exchange reserves gives RBI enough room to insulate an emerging economy like India from the volatility that comes with almost every Fed tightening cycle.
“We believe RBI has broadly guided its policy stance looking at the needs of the domestic economy, rather than looking outwards to what other central banks are doing,” said Rahul Bajoria, chief India economist at Barclays Bank Plc. “This approach has served them well in last two years, and we do not see any material need to change that.”
The RBI reduced its benchmark rate to a record low at the beginning of the pandemic and has stayed there since then. While the US as well as several emerging markets, including Asian peers Singapore and Indonesia, are turning hawkish, China’s policy is also diverging from the Fed as it tries to shield the economy from a property slump.
India’s central bank is not expected to raise rates before April as it sees inflation staying within its target band of 2%-6%, according to economists in a Bloomberg survey.
The central bank is scheduled to announce its next rate decision on Feb. 9, and investors will be looking for clues on normalization, that could include sponging out excess liquidity. The meeting comes amid a third wave of virus infections and the spike in consumer prices that soared to 5.6% last month.
“The pandemic continues to shape the future, but the RBI remains armed and battle ready,” Patra said. “The lessons of the pandemic will be imbibed and the RBI will emerge stronger and more resilient than before, and committed to its mandate of price stability, keeping in mind the objective of growth.”