Workers work at the construction site of the coastal road project in Mumbai on January 12, 2022.
Punit Paranjpe | Afp | Getty Images
India can achieve sustainable economic growth of up to 8% over the medium term, according to the country’s central bank governor.
The comments came shortly after data showed India’s gross domestic product fell to 6.7% in the second quarter, down from 8.2% when compared to the same period last year. The figures increase pressure on the central bank to launch its own rate-cutting cycle sooner rather than later.
Speaking to CNBC’s Tanvir Gill on Friday in an exclusive interview, Reserve Bank of India (RBI) Governor Shaktikanta Das said that he expects a growth rate in the next few years of 7.5% for India, “with the possibility of going up.”
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Das said it was difficult to talk about healthy growth for the world’s most populous country, but growth of 7.5% to 8% was “sustainable” in the medium term.
India has previously been described by the International Monetary Fund as the “world’s fastest-growing major economy,” while Goldman Sachs said India is poised to become the world’s second-largest economy by 2075 – behind Japan, Germany and the US. to China.
However, India’s growth rate has moderated in recent quarters and the IMF warned in July that economic expansion will slow to 6.5% in 2025.
This is because major central banks have started to ease monetary policy in recent months, including the European Central Bank, the Bank of England and the Swiss National Bank.
The US Federal Reserve is expected to join the rate-cutting club later this week, putting more pressure on India to start easing policy.
“This seems to be the season of rate cuts,” Das said. “But seriously, you can see that our monetary policy will be adjusted mainly, I want to tighten it mainly, with domestic macroeconomic conditions, with domestic inflation (and) growth dynamics and prospects,” he said.
“So, we are governed by that. Well, of course, what’s going on around us, what the Fed is doing or what the ECB is doing or what some other central bank is doing…that’s it,” Das said.
“However, ultimately, in the final analysis, our decision was driven by domestic factors.”
The RBI chief said the Fed’s rate cut will not affect India
Policymakers at the Fed have laid the groundwork for interest rate cuts ahead of their two-day meeting, which is set to take place on Tuesday. The only question that remains is how much the Fed will cut rates.
Some economists have insisted that the Fed should cut 50-basis-points, accusing the previous central bank of “going too far, too fast” with monetary policy tightening.
Others have described the move as “extremely dangerous” for markets, even forcing the central bank to deliver a 25 basis point rate cut.
“We will not be influenced by how many rate cuts are made, whether it is 25 or 50 or how often and frequency of rate cuts,” Das said, referring to the prospect of Fed rate cuts.
Asked whether the RBI’s Monetary Policy Committee (MPC) would actively consider a rate cut in early October, Das replied: “No, I can’t say.”
“We will discuss and decide in the MPC but on the dynamics of growth and inflation, two things I want to say. One, the momentum of growth continues to be good, the growth story of India is still intact and, so far, as inflation. outlook is concerned, we have to see the momentum on a monthly basis ,” he said. “Based on that, we will take a decision.”
