Macroeconomic stability is a shared responsibility of both monetary and fiscal authorities, Reserve Bank of India Governor Shaktikanta Das said in his address at the high-level policy conference of central banks from global south being held here today.

He said the Covid-19 period between 2020-2023 presented multiple and overlapping shocks to food and oil prices, which challenged the conduct of monetary policy. During this period, it became necessary to neutralise the impact of multiple shocks through effective coordination with fiscal policy. While India’s monetary policy worked on anchoring inflation expectations and containing demand-pull pressures, effective supply management by the government alleviated supply chain pressures and moderated cost-push inflation.

“Thus, effective fiscal-monetary coordination was at the core of India’s success in the face of a series of adverse shocks. From this perspective, macroeconomic stability becomes a shared responsibility of both monetary and fiscal authorities,” he said.

The Governor’s comments come at a time when India’s retail inflation, as measured by the Consumer Price Index (CPI), rose to a 14-month high of 6.21 per cent in October. The retail inflation was higher than the RBI’s tolerance band of 2-6 per cent. Despite higher inflation, there have been calls by leaders in the central government for the RBI to cut interest rates. The RBI, in its last Monetary Policy Committee (MPC) meeting, had left the repo rate unchanged at 6.5 per cent but changed its stance from ‘withdrawal of accommodation’ to ‘neutral’, easing the policy tightening cycle.

“Resilient growth has given us the space to focus on inflation to ensure its durable dissent to the 4 per cent target. A stable inflation or price stability is in the best interest of the people, and the economy. It acts as the bedrock of sustained growth, enhances the purchasing power of the people and provides a stable environment for investment,” Das said.

Global south

Das said countries in the global south have to increase their per capita income and productivity, for which growth is a fundamental necessity. However, growth should not come at the cost of price stability.

“To achieve higher growth, countries in global south need to step up investment in physical and social infrastructure, leverage technology and innovations, and carry out institutional reforms. All these require congenial public policies, including monetary policies, to be growth supportive while maintaining balance with inflation,” he said.

In fact, price stability is just as crucial as growth to enable economic agents to plan ahead, reduce inflation risk premium, encourage savings and investment. “Price stability is also important because high inflation is disproportionately burdensome on the poor,” he said. The role of fiscal and monetary coordination is also essential in maintaining the balance between growth and inflation.

Challenging times

The governor also said that clouds of uncertainties are still looming over the horizon, and policymaking under such conditions will be a difficult task.

“When the history of our times is written, the experiences and learnings of the last few years, will in all probability, be a turning point in the evolution of central banking,” he said. For the countries of global south, maintaining overall stability including sustained growth, price stability and financial stability continues to be a daunting challenge.

Accordingly, central banks need to work towards more robust, realistic and nimble policy frameworks that use monetary, prudential, fiscal and structural policies synergistically to achieve the desired outcomes, Das said. ENDS

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