Das: RBI not behind the curve on policy rates

Mumbai: Refuting criticism of the RBI being behind the curve, Governor Shaktikanta Das on Friday defended the policy actions, saying shifting focus to inflation management earlier would have had “disastrous” consequences to the economy.

“Tolerance of high inflation was a necessity, and we stand by our decision,” Das said, speaking at an event organised by Financial Express here. The central bank was in sync with the requirements of the economic developments, he said, adding the statutes governing the RBI clearly mention about managing inflation while being cognisant of the growth situation.

The RBI shifted focus to growth in the face of the pandemic and offered easy liquidity conditions. Despite that, the economy contracted 6.6 per cent in FY21, Das said, asking all about the consequences to growth in FY22 if the central bank had shifted its stance earlier. It could not have shifted focus to fight inflation 3-4 months earlier as well, he made it clear.

In March, the RBI felt that economic activity was above the pre-pandemic levels and decided to shift focus to curbing inflation, Das said, adding that it could not deliver a large rate hike immediately. “…the RBI has acted proactively and I would not agree with any perception or with any sort of description that the RBI has fallen behind the curve. Just imagine if we had started increasing the rates early, what would have happened to growth?”

Making it clear that the FY23 inflation estimate of 4.5 per cent in February 2022 was not optimistic, Das said the calculations were done with an assumption of crude being at USD 80 per barrel but the developments following the Russian invasion of Ukraine days after the central bank went public with this, have led to a changed scenario.

On liquidity, he said all the measures taken by the RBI during the pandemic were with a sunset clause but factors beyond the central bank’s control like the multiple waves of infections and the war have made the exit from easy liquidity measures longer. The governor assured that an exit from the easy liquidity conditions will be smooth and there will be a “soft landing”.

Challenges posed by big tech

Das said the entry of big tech firms into the financial sector poses systemic concerns like overleveraging at the borrowers’ ends. The entry of firms like Google, Amazon and Facebook (Meta), referred as big tech companies, also poses question marks around competition and data privacy.

“They (big tech) carry risks, which need to be properly assessed and dealt with,” Das said. Such companies can include entities in e-commerce, search engines and social media platforms that have started to offer financial services in a “big way” on their own or through tie-ups, he said, adding this is leading to the use of new methodologies in credit assessment.

“Such large-scale use of new methodologies in credit assessment can create systemic concerns like overleverage, inadequate credit assessment and similar other risks,” he added. Das said deploying harsh recovery methods like calling up at odd hours or using foul language is “unacceptable” and assured that the RBI is paying “serious attention” to such happenings to ensure necessary action is taken to curb such activities.

He said most of such instances are reported from unregulated entities, but added that the central bank has also come across such tactics being used by entities regulated by the RBI, and urged all players to give special attention to the same.

The comments came at a time when there have been allegations of suicides by many borrowers triggered by harsh recovery practices by agents. The central bank will continue with its role to foster innovation while trying to contain the systemic challenges, he said, adding that the RBI will soon come out with a discussion paper on digital lending. —PTI