RBI Governor Das says inflation must fall to 4% to be able to cut interest rates

By Anup Roy

Inflation in India must show signs of sustained stabilization around the central bank's target of four percent before a rate cut can be considered, said Shaktikanta Das, Governor of the Reserve Bank of India (RBI).

“We are fully focused on inflation and keeping a close eye on growth,” Das said in an interview with NDTV on Tuesday. “We want inflation to come down and stay at around 4 percent,” he added.

Inflation fell below the RBI's target in July for the first time since 2019, but the central bank expects it to rise again from September.

The RBI has kept its policy rate unchanged for over 18 months. During its policy rate review earlier this month, it paused the rate due to the impact of ongoing food inflation on overall prices.

It would be a “serious policy mistake” to cut interest rates because of a one-off drop in inflation, Das said. Decisions on interest rates must be based on data, and the central bank does not want to “confuse the people who make their forecasts,” the governor said.

There is growing debate over whether it is appropriate for the RBI to aim for an inflation measure that includes food items, as interest rates have no direct impact on their prices. Das said that not including food inflation would affect the credibility of the policy as it has a weight of 46 per cent in the overall consumer price index.