Fact Check: RBI Governor on Inflation, Rupee, and AI Risks at NDTV Summit

For [snorts] any economy, and especially for India, at a time when there is so much uncertainty outside.

>> Yeah, the times certainly, you know, as you have described are quite demanding for central bankers across the globe.

Uh because of the high uncertainty, supply chain disruptions,

the West Asia conflict, geopolitics, uh trade-related uncertainties for many of the

uh countries and uh So, the role of the central bank, however, you know, doesn't change.

Uh it only makes it the times, the conditions only make it more challenging.

Uh globally, the inflation levels, as you are all aware, are elevated. It's not only crude, even

crude even commodity prices are higher. Growth, on the other hand, globally, you

know, is lower. It's projected at 3.1% for this year as per IMF. The average has been about 3.7%. So,

well, growth is lower, inflation is higher uh globally, and so that makes the role of

a central banker more challenging. The role of a central banker primarily being

number one, across the globe, without exception, price stability, along with the dual mandate for some of

the central banks, which is growth and financial stability being, you know, the other equally important uh

uh mandate. So, you have seen across the world, most of the economies, except for a few

like Japan, Sweden, uh where inflation levels are not so high, they have increased policy repo

rates. Coming to India, uh we started with very

uh uh we had very good initial conditions when

we entered this uh challenge uh in February. Last year, you are aware the inflation

on an average was about 2%, 2.1%. And growth almost 8%. First quarter also, you know, is 7.8%. So,

the macroeconomic fundamentals as we entered uh were very strong and we have seen that it is this resilience uh that

is still uh playing out. Of course, inflation has now gone up while growth

is quite high, 7.8% for Q1 as I mentioned. Inflation has now steadily has been

rising uh mostly on the supply side uh and it's at 5.5%. We raised our uh

uh repo rate by 25 basis points. So, we are uh uh yeah, we we continue to

uh follow and endeavor to meet the twin objectives

of uh price stability reining in the inflation, that's our goal number one. While at the same time

ensuring that there is financial stability implying that the financial markets

uh whether it is debt, whether it is equities, or uh other forex markets, they are

orderly. The financial institutions are healthy. And the financial systems are working.

So, this is our goal. And this is what we uh

keep trying to achieve. >> Oh, absolutely. You know, I must ask you, sir, about the

rupee. The rupee and where the currency is going has always been something that has

been a focus of economists, but now Now than ever before, I think even in common parlance

people talk about the rupee. Rupee took care. You know, against the dollar, where

we're going. The last time we spoke, sir, you talked about an average depreciation of 4 to 5% for the rupee,

which could happen for the currency. Um how important in your view is the

defense of the rupee? And I know the central bank does not intervene and manage the currency, but in recent times

there have been some moves. Example, the special window for OMCs to make sure that the rupee has some

defense. How crucial is this in your view? >> me first of all, uh, you know, I do not

recall having said that the rupee, you know, depreciates by four. No, I would have said

that in the past the rupee has depreciated, if you if one looks at over a 10-15 year period, and it would have

depreciated by, say, about 3% uh, per annum. But it doesn't mean that that is what you expect. In fact,

uh, I would like to say that periods of high depreciation in India have been followed by appreciation.

And again, I'm talking about the past. So, uh

as you are all aware, we do not target any price. Coming, you know, to rupee and the defense of rupee, as you have

been talking about, we do not target any price or level for the rupee. But at the same time, uh,

it has been our endeavor that we ensure orderly market conditions in the forex markets.

And so, uh, we have not hesitated, as you have seen in the past, uh, to take measures

as may be necessary in order to curb what may what we may feel is speculative behavior, or if there is

excessive volatility. Our aim is basically to ensure that there are no disruptions

or disorderly conditions in the Forex markets. >> Um sir, you also said that monetary

policy and financial stability can't be completely de-linked if I'm not wrong. So, would

would monetary policy and rates be a part of the FX toolkit for the Reserve Bank under the current circumstances?

>> So, let me uh for those, you know, who may not have heard it, let me uh reiterate that

uh generally monetary policy uh and financial monetary policy is not a tool for financial stability.

We use monetary policy for price stability and we use others other tools like macro-prudential tools for

meeting our financial stability uh objective. Nevertheless,

uh you can't achieve, you know, price stability without having financial

stability. And that is the foundation, that is a prerequisite.

So, the two objectives are therefore linked. Does it mean that

uh monetary policy can be used? As I said, generally we do not use monetary policy for the purposes

of uh financial stability, but there can be times when

uh it is used. Now, that is the theoretical or the economic concept.

Whether it will be used or not, whether the time is right, whether the circumstances demand, whether they will

be effective or not is something which the monetary policy committee certainly deliberates

on these issues and it is up to the monetary policy committee to take a view depending on the circumstances. So,

that's why I wouldn't want to preempt or wouldn't want you to preempt and try and tell us what you'll do in the future,

but are the current times warranting the use of monetary policy for price stability because

these are really uncertain times. I mean, one in terms of flows, two in terms of global rate action that we are

seeing and unfortunately inflation around the world. >> No, see this is I will not like I will

not like to take on the role of the monetary policy committee right now. Okay, let's wait.

Uh the monetary policy committee meeting happens once in 2 months. Let this not be

you know, a precursor a precursor to the monetary policy committee. So,

uh let's wait uh for another month or so and let's see, you know, what uh the monetary

policy committee thinks uh going forward as you are all aware. Uh we have changed the stance

uh from neutral uh to uh to uh tightening stance. And uh the monetary policy committee

therefore, you know, will take a view based on the evolving uh macroeconomic conditions.

>> Governor Malhotra, I have I have a confession to make. The thing with journalists and sometimes business

journalists are always hunting for that headline. So, >> [laughter]

>> pardon us that endeavor as well. But, um I think you spoke rightly that the next MPC meet

is in a couple of months. Let me ask you about the one that just went by and what is in the public domain because interest

rates were hiked after more than 3 years. We've moved our stance to calibrated tightening.

For our audience today, those sitting here watching us across the NDTV network, what does that mean for their

lives? What does it mean when an interest rate is hiked after such a long time, calibrated tightening? To their

minds, should they understand that there will be more hikes coming, maybe a pause, things are

getting tougher? What is happening? >> What it means to them is that we are steadfast in our commitment to meet our

goal of price stability. Uh and price stability is very important

for them because it is the real uh rates which are important. If there is high inflation, then it it's

it's like a tax on uh on everyone. So, it's very important that uh we meet our objective of

price stability, our target of 4% with a band of, you know, plus minus 2%. Uh

and so, uh while we are taking this action of increasing the policy repo rate, obviously it means higher interest

rates. Uh and and it means higher deposit rate. It

means higher cost of credit uh for everyone. But, it is with the objective of

uh of curtailing inflation, of curbing inflation, which

is which is in everyone's interest. >> You know, even as um the inflation targets were upped in this policy, so

were growth targets. To the GDP target, for example, for FY27 was uh was was increased as well.

>> The projections, you mean? The projections for this year. >> as well, sir. Um

is that speaking to the resilience of the Indian economy? Is some of that fueled by the inflation that will come.

Just want to understand the thought behind that projection. >> No, growth

has been holding up very well as you are all aware 7.8% for Q1 even and that is broad-based. It's not only because of

consumption. In fact, uh investment has seen in Q1 at least, you know, almost 12% growth rate. The

exports also, you know, held up very well. Uh double-digit growth even in exports. So, the growth in Q1 uh was

quite broad-based. And even this quarter, the headline the the high-frequency indicators,

whether one looks at cement, uh steel, credit growth, taxes, growth of taxes,

sales of automobiles, etc. All the high Most of the high-frequency indicators on files that the growth is actually

holding up. Uh and it is because of the strong, I think, uh uh

reforms and the policy measures and the frameworks that, you know, we have put in place over the years as a result of

which despite strong headwinds, we got 7.8% and even for this year

uh a high growth of 7. uh 1%. I mean, and similarly, you know,

inflation is elevated, but still it's not out of the tolerance band. Again, it is because

of the policy framework that was put in place in 2016 when we got inflation targeting as the

mandate for uh for the Reserve Bank. And after that, I would like to mention over here for

the benefit of the audience that we have had an average inflation of 4.7% as against in the 10-year period after

that as against an average inflation of 7.4% in the 4-year period just prior to that.

So, as a result of the credible policies of and operation of monetary policy, we have had

relatively lower inflation. The higher inflation now is as I mentioned because of supply-side reasons

like primarily arising out of food and fuel. And that's why you know, we have

increased our projections for this year on an average to 5.1% I think. Yeah.

>> Should we open up to a few questions? >> of questions if before I just open up? Governor just trying to link the global

mechanics with what impact it could have on your thinking if not the decision-making right now because the

RBI in the past and the MPC in the past has shown the pension for charting its own course

independent of what necessarily the global central banks would do. Right? Not all the times is it in in tandem and

it's proven to be master strokes. Will this time could the RBI and the MPC's hand be forced if indeed global

bond yields behaving the way they are and if inflationary pressures behaving the way they are globally uh lead the

central banks to raise rates out there? >> Uh your question broadly is do interest if I understood you correctly is

do bond rates outside impact monetary policy within

our country? >> Especially in the current world >> Especially in the current world when the

bond yields are very elevated, let's understand why the bond yields outside are elevated.

I would say primarily because first of all, you know, inflation is higher as we

mentioned all over the world except for a very few countries. Number two,

the demand for capital both by governments, public debt is poised to reach record

levels of 100% in a few years to GDP. And at the same time, there is also the

the demand coming in from technology uh related companies with AI-related investments.

So, as a result of these two conditions along with a lot of uncertainty, uh which is which is there, which raises

inflation expectations, uh the the yields outside are in are are much higher.

Now, when we decide monetary policy in our country, primarily, it is on the basis of the growth inflation dynamics

of our country. But, does it mean that the bond yields outside and what is happening outside

has no impact on our monetary policy and our growth inflation dynamics? Well, no, they do have they do have impact. They

have impact both for our growth, they have impact for our inflation. You

can see, you know, because of external factors. Right now, uh some of it, of course, have been cushioned

and that has helped the economy, uh the cushioning of uh the price rise,

uh the in in the crude prices by the government has helped us. But, nevertheless, it has had some

impact on our inflation. And similarly, interest rates. If interest rates go up over there, they do have an impli-

implication for what we call the R star

uh or the neutral rate of interest, they can have uh an implication on all these three

which is growth, inflation and the neutral rate of interest within our

country, especially if these conditions uh remain persist for a long period of

time. >> And and just one final question. And therefore, if indeed uh those pressures

last in the in in in in the in the global world uh and because you mentioned in your answer that there are

a lot of supply-side shocks which are leading to slight inflationary pressures, raising of rates might impact

growth or on consumption, which is which is looking good, but maybe skittish at the slightest sign of uh a major hike in

rates. Which side would you veer on, sir? Would you uh

in order to tackle inflationary pressures, if you will, raise rates even if it were to impact growth?

>> That's a question for the monetary policy >> Again, okay.

>> committee, you know. Uh uh let let's wait, you know, what the monetary policy committee will do. Let

me remind all of you that the primary mandate of the monetary policy committee is price stability, keeping in mind

keeping in mind growth. So, growth is secondary. The mandate, of course, is is is price stability. But

but does it mean that uh if global bond yields are high, then

one has to use interest rate as a means uh that that that is something, you know,

that that the monetary policy committee has to see, uh and that's not for me, you know, to mention over here.

>> Governor, we have a lot to unpack, but I think we have some questions from our audience as well. I'm going to request

our Delhi Bureau Chief, Shimi Choudry to come in with a question. >> Yeah, it's on.

>> It's on. >> Thank you, Governor, for the opportunity.

Uh I have two quick question. Um AI is actually the theme key theme of uh our summit. So, my question first

question is actually that uh in the latest US report, uh it's flagging a very serious concern on the unauthorized

AI agent. Uh of course, uh there's no such incident as far as Indian banking system is concerned, but given the kind

of digital ecosystem India has, uh do you think that uh you know, uh we need to take any safeguard? RBI is

taking any steps uh in that direction? Considering the fact that government has also come out

with the advisory, and my second question is that the government has successfully completed its strategic

disinvestment in IDBI Bank, putting spotlight back on the disinvestment of PSU Bank.

Being a key stakeholder, what is your view on the strategic restructuring? I would not say disinvestment, but

strategic restructuring. Thank you. >> Strategic restructuring with the respect to Idea IDBI Bank?

>> Other PSU banks, sir. >> Other PSU That see, that's for the government, you know, to take a call uh

as to how they want to go about uh doing the restructuring. You are aware earlier they had done

uh and they had they had merged some of the smaller banks uh into uh with with with the bigger banks. There are now 12

12 banks. Recently, they uh merged uh the regional rural banks, and now they have only one uh RRB uh per

state. Uh uh uh this is for the government uh uh to to uh take a call as to how they

want to go about doing it. In so far as your question on AI-related risks, well, they are real risks.

Uh we are conscious. We are alert. Uh we have a very strong team. We have the right regulations in place. We have

the right supervision. Uh we have the right talent uh which goes and which does the audit

of the of the IT systems of the major banks and the major NBFCs

and we are in constant continuous uh dialogue both, you know, online and offline with them to further strengthen

uh their IT systems. >> Governor, just on on the point about security, uh

one of the largest, or I would say the largest bank in India, recently, and said this in an exchange filing, talked

about some leakage of their customer data on the dark web and how they were going to deal with it. Uh recent CERT-In

report also talked about a lot of organizations, including some financial ones, that have been hit. Is the RBI,

apart from its own system, in contact uh with the banks on what they are doing? And what would be your prescription to

banks today to ensure that the data safety of their customers is guaranteed? >> Yeah, absolutely. This is what I

mentioned that we are in continuous uh touch with them. We have the regulations in place and we

it's been our endeavor that they follow those regulations. Uh and so it's

not only with respect to the security of the system so that the systems are working efficiently and there is no

downtime, uh but at the same time, the security of the data. So, two

things. One is data security and the other is the the the cyber risk from uh various

attacks which could pull down uh the the system. So, on both these accounts the RBI uh uh

has a good regulatory and supervisory system.

However, as you are aware, developments in software keep happening at a very rapid pace on a weekly basis, on

everyday basis. And and so it's possible sometimes that some

vulnerabilities do creep in. Uh it is our endeavor that we identify these vulnerabilities as soon as

possible and plug them through through the patches that have to be deployed

uh in these IT systems. >> You know, something that in fact Tamanna highlighted earlier in the day,

Governor, and I would like to ask you that. There was a report which said that uh some agents

uh took over bank accounts of uh people in the West and maybe withdrew money and did things which maybe they were not

permitted to. How how safe is the Indian ecosystem in the uh on this premise wherein a lot of people are actually

using agents for doing financial transactions online? >> I think the

the incident that you are mentioning is about some AI agents which were in a test mode, but then they

in but then they attacked and they were able to steal data uh of some banks outside.

Well, these risks are real. One cannot discount them. So I will not downplay, you know, those risks. We have to be

alert, but at the same time I am saying that our banks uh

the government as well as, you know, the RBI, we have uh alerted them and they have they're

conscious about it and they are taking measures to ensure that

such kind of uh such kind of vulnerabilities, wherever

they are, uh they are they are plugged. >> Um Alex Mathew, associate

>> See the these I mean it's not it's not that AI uh

AI is able to uh is able to uh take advantage only if there is a vulnerability.

And so if we keep our system secure we can certainly defend against uh these AI agents or other such similar

uh technologies. >> Alex Mathew, uh associate executive editor at NDTV Profit, wants to ask you

a question, sir. >> Good evening, Governor, and thanks for the opportunity. I want to shift back to

the rupee. And uh obviously it's well documented the measure that the RBI most recently took with regard to the oil

marketing companies in allowing them to uh get their dollar uh requirements from the window that you provided. And so

obviously you've described and you've showcased the ability to think outside the box and provide use toolkit uh to

defend rupee where required and remove volatility as you've described it. Uh dealing in hypotheticals, and I'm not

necessarily saying that the Reserve Bank does this, but maybe the government can contemplate this. Uh do you think that

there is the need to contemplate a gold monetization program to perhaps shift the demand

uh and the uh taking care of the demand from India because of the voracious demand for gold

from global to India? >> Uh I think you are mentioning about the gold that is there with some

30-35,000 tons of gold monetize that I mean with the public

>> and and and take that gold uh is what you are saying.

I mean that is that's not a proposal which is under under consideration of the RBI.

Uh I cannot say uh about about the government. But let me, you know, since you since

you mentioned about, you know, go about monetization, let me tell you that uh India's external

sector is quite in the medium term is very strong.

So, we don't need to, you know, think of such things. And I say this because

what I see is, you know, a temporary thing. I'm optimistic that in the medium term

uh the balance of payments and the external situation is going to be strong.

We already have, you know, sufficient forex reserves by all metrics as per IMF metrics.

We built on them. We reinforced them through the FCNR B scheme as you are aware.

And uh if you look at, you know, all other parameters on the external sector,

whether it is merchandise exports, which is growing in double digits, look at services exports, it is holding up well,

look at remittances, there was huge growth in remittances. Government is taking a number of

measures, you know, to further prove boost productivity within our country, number of FDAs that have been signed

with major economies which are going to help us in our exports and at the same time is taking measures to reduce our

energy intensity. You are aware energy is, you know, one of our major imports. Through, you know, programs like ethanol

blending, EVI, I can go on and on and on. Uh

you know, the positive steps that RBI recently, you know, the government took steps even on the taxation side for

government securities. So, in the medium term, you know, especially after this West Asia conflict

resolves and crude prices they have to come down. They cannot, you know, keep on going up and up and up. Uh they have

to come down. I'm quite confident that our BOP and our external sector, you know, is is

very strong and we do not need such kind of a gold monetization scheme. >> Uh Rahul Kamal, our editor-in-chief, uh

wants to ask you a question, sir. >> Governor Malhotra, thank you so much for taking out time and joining us from

Mumbai. The entire NDTV team deeply appreciates that. Can we have a round of applause for the RBI governor, please?

>> [applause] >> Now, Governor, the single most closely tracked issue in

India Inc. at this moment is the debate around the listing of Tata Sons. Now, as regulator, I realize that there are

things that you cannot say on a public forum, but allow and but if we don't ask you at all, we'd be remiss in our duty.

So, as journalists, allow me to ask and you answer as best as you can as regulator.

Governor Malhotra, is the RBI at this moment determined to ensure that Tata Sons lists

or are you willing for Tata Trust and Tata Sons to come up with different solutions, formulations and then

evaluate those to see if a listing need not happen? You're smiling very wryly and I'm very curious to see how you

answer this, Governor Malhotra. >> No, I'm sorry, you know, we do not, you know, as a policy we do not answer

questions relating to any specific regulated entity. Uh and so, you know, uh pardon me, you know, I I'll not be

able to answer this uh specific question, but let me mention to you that uh NBFCs and CICs

uh like, for example, Tata Sons and others they are liquid they are required to be

registered with us. And if they are and they are required to be registered because of the risks because of the

systemic risks because they sit on top of uh group companies where they leverage funds.

They can leverage funds. They do leverage funds. And uh they use the balance sheets of the

group companies uh to return those funds.

So, the funds of the public, whether you know, it is banks, whether it is through corporate bonds and other means, that is

at risk when, you know, these CICs uh do this kind of an activity. And so, it

is for these reasons that these CICs, which are a type of NBFCs, are required to be

uh registered. Only in case only in case uh a CIC does not have access and

directly or indirectly to public funds, then we allow them not to be registered.

>> So, hypothetically and not speaking about any specific entity, a restructuring or an a

reorganization of a body to meet those requirements would then be acceptable. >> I mean, as long as long as, you know,

it's an NBFC within our definition, it's a CIC, it's has access to funds, direct or indirect, it's required to be

registered. And if it is in the upper layer, then it is required to list. >> So, I have very little time with you, so

we're going to ask two questions which it we cannot end this interview without. One is on FCNR B. You mentioned it

briefly. Um I think it was a bigger hit than was expected maybe because we closed the scheme uh before the

deadline. Now, there are some who asked the question that in maybe 3 years after all of those

inflows, there will be outflows as well. What is the your view on the liquidity situation in India vis-a-vis FCNR(B)

today and 3 years from now when we have to return that money? >> So, two questions. Yours first Yours

second question, you know, how do we return that money? I already answered. I'm very optimistic that our external

sector is very resilient, very strong, and we should We already have I mean, we already have sufficient you know, money

and reserves in order to pay that, but we'll have even more than that. And we have 4 years on an average the average

deposit size is 4 years plus, and so we have sufficient sufficient time, you know, to repay

that. In so far as your question on liquidity is concerned, I think you were mentioning to the high

liquidity >> Currently >> current current liquidity

>> in rupee terms. Uh Our aim is always to have liquidity so

as to ensure that the operating target, which is the overnight rate weighted average

call rate uh aligns with our policy repo rate, which is now 550.

Uh Liquidity was certainly in surplus. But as a result of some of the measures

that we took, we did some OMOs, 1.25 lakh crores, some sell-buy swaps, some intervention, and

>> [snorts] >> also because of natural reasons like currency leakage, higher demand for

reserves as deposits grow up the liquidity has come down. The

the walker, which is our operating target last

uh last traded at about 565 570, from 510 to 570, which is indicative

of the fact that liquidity in fact is in the near term is deficit or the short-term liquidity is deficit.

So, we will ensure going forward through a variety of tools that we have along with the natural demand for liquidity

because of currency leakage, etc. uh that liquidity is uh is appropriate as required to maintain

the operating target at the policy report rate. >> Governor, to be honest, we uh don't want

to end the opportunity to ask more questions, but we have to wrap up. I want to thank you once again for

speaking with us at the NDTV World Summit and of course for steadying the ship in turbulent times for India. Thank

you so much, sir. >> My pleasure. >> Thank you very much for inviting me.

Thanks. >> And I can call me up to I go that way or this?

>> Thank you so much, sir. Can we please have our gifting partner express a token of our appreciation from

the team at NDTV. Ladies and gentlemen, I would request you to

to get the best seat in the house for the next session. It's one of the most awaited sessions of the NDTV World

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