A day before writing to the government detailing the reasons for the central bank’s protracted failure to keep inflation below 6% as required by law, RBI Governor Shaktikanta Das claimed on Wednesday that Although there was a shift in the path of inflation, any premature tightening of policy could have proved costly for India’s economy and people.

“We didn’t want to disrupt the recovery process, we wanted the economy to land safely, to reach the shores” before trying to bring inflation down, Das told bankers at FIBAC 2022, a annual banking conclave. “But on February 24 [the day Russia invaded Ukraine] changed the whole picture,” he added.

Stating that the counterfactual should also be appreciated, he said: “In the process [of dealing with the challenges posed by the COVID-19 pandemic and war-induced imported inflation] there was a slippage in our inflation trajectory to keep inflation below 6%, but that would have been very costly to the economy, to the citizens of this country. They would have paid a high price,” he said.

“Today I can say with confidence that the whole debate over RBI [being] behind the curve is over. Today, as things stand, the growth momentum has continued, inflation is expected to moderate, the financial sector is stable and resilient, bank balance sheets appear strong, the corporate sector balance sheet is equally strong, the MSME sector withstood the crisis and there was a drawdown of credit. he added.

Stressing that domestic inflation remained high, he said, RBI was closely monitoring inflation trends as well as the effect of its past actions. “In our view, price stability, sustained growth and financial stability should not be mutually exclusive,” he said.

Drawing a parallel between Arjun’s focus and RBI’s efforts to curb inflation, he said, “In the Mahabharata during the famous Swayamvara, when the great warrior Arjuna aimed for the eye of the revolving fish through the basin of water below, he would certainly have assessed the speed at which the fish was spinning, the wind conditions, the intensity of the ripples in the water basin, the noise levels in the king’s court and other similar factors. “.

“No one can match Arjuna’s prowess, but our constant endeavor is to keep Arjuna’s eye on inflation, which is our main objective,” he added.

“I want to say with a lot of empathy that the monetary policy framework constituted in 2016 is very transparent and the drafting of the letter is very essential and a fundamental element of this transparency.

CBDC deployment in 2023

He said the central bank digital currency (CBDC) would be rolled out in 2023 after reviewing the pilot projects currently underway.

He said the CBDC would be a historic moment in the history of money and currency in the country. “Going forward, this is going to be a major transformation in the way business is done, the way transactions are conducted,” he added.

Observing that the RBI was among the few central banks in the world to have taken this initiative, he said that the commercial part of the CBDC pilot would be rolled out later this month.

Referring to exchange rate volatility, Mr Das said that almost all major currencies – with the exception of the Swiss franc, Singapore dollar, Russian ruble and Indonesian rupiah – suffered depreciations against to the US dollar which had exceeded the depreciation suffered by the Indian rupee.

“From April 1 to October 31, the Indian rupee depreciated by 8%, while the US dollar appreciated by 13% [against a basket of 6 other currencies]“, he observed.