Mumbai. Reserve Bank of India (RBI) Governor Shaktikanta Das said on Tuesday that a balance between price stability and economic growth is necessary. He said that if the central bank prioritizes price stability and for this ‘compromises with growth on a large scale’, then in such a situation there may be a need to reconcile the two. Das said in his address in Kathmandu that to help the economy, central banks should adopt measures like regulation and surveillance along with monetary policy with discretion.
He said in the Himalaya Shamsher Memorial Lecture organized by the Nepal Rastra Bank, “A state of balance between price stability and growth arises when growth is sacrificed for price stability.” According to Das, it may be that measures for price stability are not suitable for financial stability. Recently, this was seen in some developed economies. There, when tight monetary policy has raised concerns about the stability of the banking system. He said that in the Indian context, the functions of the RBI are much broader than price stability and include maintaining financial stability. Das said that this helps us to take a holistic view of the economy, move forward with coordination and take steps using whatever means we have.
He said that the stance adopted by the RBI is ‘good’ for the economy. Policymakers have been able to protect the Indian economy from many shocks in the last few years and have also helped it to emerge stronger. The RBI governor said, “The Indian economy is performing better today and the macroeconomic fundamentals are very strong.” India adopted a flexible system of inflation targeting in 2016. Its purpose is to support growth according to the situation.
He said, “Financial stability is a prerequisite for maintaining price stability and growth on a sustainable basis. This is included in the responsibility of the Reserve Bank. It is this approach that has helped us effectively deal with many challenges in the recent period and resolve issues related to price stability, supporting growth and maintaining financial stability.”
Das said that emerging economies have shown more strength in challenging times and have adopted steps to strengthen the foundation. He said, “The most important lesson is to strengthen the foundation. This is the best way to deal with the impact of global challenges in today’s uncertain world. The basics include commitment to inflation target, maintaining buffer in the form of reserve and adopting a prudent and far-sighted approach in financial sector policies.”