The formation of inflation in India needs to be navigated towards convergence with global inflation so that both the internal and external value of the rupee (INR) is preserved, according to RBI Deputy Governor MD Patra.
“This will prepare the ground for the internationalisation of the rupee and the emergence of India as the economic powerhouse of the world of tomorrow,” Patra said in his recent address at the Lal Bahadur Shastri National Academy of Administration, Mussoorie.
The World Bank, in its latest GEP (Global Economic Prospects, projected global inflation to moderate to 3.5 per cent in 2024. The Reserve Bank of India has projected CPI (retail) inflation for 2024-25 at 4.5 per cent and 4.1 per cent in 2025-26.
Global financial hub
The Deputy Governor observed that as India emerges as an export powerhouse backed by a strong manufacturing base, a natural corollary will be the full internationalisation of the Indian rupee.
“Several factors are already in place. The Indian diaspora is the biggest in the world and India is the top recipient of remittances. The Indian rupee trades three times more offshore than onshore.
“India is expanding local currency settlement arrangements with several countries in Asia and the middle east and interlinking of payment systems is underway. Deep and liquid financial markets are developing,” Patra said.
The Deputy Governor noted that the international financial centre in GIFT city, Gujarat is emerging as global financial and technology hub with a thriving financial ecosystem.
The policy emphasis on macroeconomic and financial stability is also a positive for the INR going international, he added.
Patra underscored that the principle task of monetary policy is become the anchor of the Indian economy.
“Short-run fluctuations of aggregate demand have to be managed pro-actively so that a broad alignment with the economy’s evolving productive capacity is ensured.
Monetary Policy
“Price stability is the best contribution that monetary policy can make to strengthen the foundations of the aspired trajectory of growth over the next few decades,” Patra said.
The Deputy Governor emphasised that the RBI has anchored expectations by remaining committed to aligning inflation with the (4 per cent) target and regards the recent easing of price pressures as work in progress.
“The taming of inflation lays the foundations of sustained high growth in the future by improving consumption conditions, the investment outlook and external competitiveness,” he said.