The conference, held to commemorate the 90th anniversary of the RBI, brought together central bankers from emerging economies to discuss the region’s distinct economic challenges.
“Balancing inflation and growth is the cardinal principle of monetary policy,” Das emphasised, drawing from India’s experience in navigating the complexities of inflation and growth amid global economic turbulence.
A framework for flexibility
Das highlighted the success of the RBI’s Flexible Inflation Targeting (FIT) framework, which allows adaptability during crises. “The flexibility embedded in this framework is critical to maintaining a balance between price stability and growth,” he said.
The RBI’s approach has prioritised inflation control while addressing broader economic growth objectives, particularly during challenges such as the COVID-19 pandemic and subsequent geopolitical disruptions.
During the pandemic, the RBI focused on reviving growth, treating inflation driven by supply-side shocks as temporary. “We were correct in our assessment,” Das said, reflecting on how inflation eased as supply chains normalized and the pandemic subsided.
However, the geopolitical tensions following Russia’s invasion of Ukraine in 2022 introduced new challenges, with rising food and energy prices intensifying inflationary pressures. Das explained how the RBI responded by withdrawing monetary accommodation and raising rates to manage inflation while supporting economic recovery.
“The overarching priority was to achieve a balance between inflation and growth,” he noted.
The role of fiscal-monetary coordination
Das stressed the role of fiscal-monetary coordination, particularly for countries in the Global South. Citing India’s experience during the pandemic, he highlighted how close coordination between the RBI and the government mitigated supply shocks.
“Effective fiscal-monetary coordination was at the core of India’s success in navigating overlapping shocks,” he said, adding that this model could serve as a reference for central banks in emerging economies where fiscal constraints often pose challenges.
A call for growth and stability
The Governor emphasised the dual objectives of fostering growth and ensuring price stability for countries in the Global South. “Growth is a fundamental necessity, but it cannot come at the cost of price stability,” he said.
For nations with low per capita income and substantial developmental needs, Das advocated investments in infrastructure, technology, and reforms to achieve higher growth. However, he stressed that long-term economic stability relies on maintaining price stability.
“Price stability reduces uncertainty, encourages savings and investment, and ultimately contributes to sustained growth,” he remarked.
Communication as a policy tool
Das also focused on the evolving role of central bank communication, noting a shift from opaque practices to transparent strategies over the past few decades.
“Monetary policy, in essence, is the art of managing expectations,” he said, explaining how the RBI uses communication to anchor inflation expectations and manage market reactions effectively.
He cited the RBI’s communication during the pandemic and the rate-tightening cycle that began in 2022.
“When we paused rate hikes in April 2023, we emphasised that it was a pause, not a pivot,” Das noted. This clarity helped prevent erratic financial market behavior.
For central banks in the Global South, he stressed the importance of transparent communication to foster macroeconomic stability and ensure democratic accountability.
“Effective communication fosters stability and builds trust,” he remarked, calling for the development of best practices in communication for emerging markets.
Crisis management: Lessons learned
Das concluded by reflecting on the RBI’s crisis management strategies during the COVID-19 pandemic.
He described how the central bank employed both conventional and unconventional measures to ensure liquidity reached sectors in need without disrupting markets.
“Most of these measures were time-bound and announced with pre-set terminal dates,” he said, noting that the RBI successfully unwound these measures without causing market instability.
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