Central banks in no rush to raise rates, will back growth: Shaktikanta Das

RBI governor Shaktikanta Das is optimistic about the growth prospects of the economy. In an hour-long interview with TOI’s Sidhartha and Surojit Gupta, he said that savers can look at various small savings schemes for better returns while asserting that inflation management remains a top priority. He said equity investors must be judicious and not get carried away by short-term trends. Excerpts:
What is your assessment of the economy?
Growth impulses are gradually and steadily getting broad-based. The high-frequency indicators such as steel consumption, PMI for manufacturing and services are expanding, GST collections and e-way bills are showing improvement. Earlier, there was an impression that it was due to pent-up and festival demand. But now, it is genuine demand that is visible. The vaccination drive is giving greater confidence to consumers, so the demand is expected to sustain. The only downside risk is the recent spike in the number of Covid cases in certain parts of the country. With daily vaccination numbers going up, we should be able to contain a further spike. But we need to be watchful. International crude and commodity price increase renders some amount of uncertainty, not just to the process of revival in India, but globally, which can have an impact. There is always a demand-supply balance that plays out in the commodity space.
Is credit flow an area of concern?
Overall credit growth has now crossed 6% after remaining low for a prolonged period. Deposit growth (YoY) is around 11.5%. Credit in the retail sector is picking up. What needs to pick up is loans to industry and manufacturing. The benign financing conditions resulting from RBI’s action in reducing interest rates and making liquidity available in abundance have been utilised by corporates to raise money and deleverage their balance sheets. There was a lot of repayment of previously availed high-cost loans. There is space in their balance sheets to invest. According to our monetary policy statement, capacity utilisation is around 63%, which is an improvement over previous months. Once capacity utilisation starts picking up and with all the positive trends on growth, and the scope for leverage, there should be more credit offtake by corporates and businesses in the months to come. There is enough credit available for any business with a good proposal and a good balance sheet.

Do higher commodity prices and hardening rates limit your ability to cut rates?
Interest rates are in the domain of the monetary policy committee (MPC). The hardening of bond yields currently is an international phenomenon. But what is important to note is that communication from almost all central banks is quite similar. Every central bank is on the same page in terms of commitment to support the process of economic revival, avoid any premature withdrawal of liquidity and avoid premature tightening of monetary policy.
What can be done to carry the process of government borrowing smoothly given the high bond yields?
The RBI remains committed to implementing the government’s borrowing programme in a non-disruptive manner. Some questions have been raised about the size of borrowing. Next year (2021-22), the gross borrowing is around Rs 12 lakh crore, the net is around Rs 9 lakh crore. In the current year, we have done open market operations (OMOs) of Rs 3 lakh crore and next year also we will do Rs 3 lakh crore, or more, depending on the situation. We have extended the held-to-maturity dispensation, which opens the space for another Rs 4 lakh crore. Against the net borrowing requirement, already Rs 7 lakh crore is on the table. As for the gap and state government borrowings, we have assured the provision of ample liquidity in the system.
One important signal in our latest Operation Twist notification is that we are injecting liquidity via OMO purchase of Rs 20,000 crore but we are taking back Rs 15,000 crore through the sale of short-term securities. This is a change…