Shaktikanta Das: Central banking in uncertain times - the Indian experience

Opening plenary address by Mr Shaktikanta Das, Governor of the Reserve Bank of India, at the Summer Meetings, organised by Central Banking, London, 13 June 2023. 

Central bank speech  | 
22 June 2023

In recent times, especially since the outbreak of the COVID-19 pandemic, central banks – who are at the core of monetary and financial systems – have been called to do "heavy lifting" well beyond their traditional mandate. Central banks have navigated through unchartered waters during the three black swan events – the pandemic, the war in Ukraine and the unprecedented scale and pace of global monetary policy normalisation – all in the span of three years. More recently, central banks had to quickly change gears from providing stimulus to pandemic ravaged economies to battling inflation with all ammunition at their disposal. Even as the battle against inflation was ongoing, the banking turmoil in certain advanced economies (AEs) posed the awkward trade-off between financial stability and price stability. This extraordinary period of global turbulence has indeed been extremely challenging for central banks and central banking.

2. In my address today, I propose to highlight the Reserve Bank of India's response to the multiple challenges of COVID-19, surge in inflation, growth slowdown and threats to financial stability. I also propose to enumerate the lessons learnt which may become a part of central bank operating procedure for such events in the future.

COVID-19 Response

3. The COVID-19 pandemic scarred the global economy, causing unimaginable loss of life and livelihood. In India, our response amidst the imposition of nation-wide lockdown and social distancing was prompt and decisive. We were perhaps amongst the first few central banks to have set up a special quarantine facility with about 200 officers, staff and service providers, engaged in critical activities to ensure business continuity in banking and financial market operations and payment systems. Our monetary policy committee (MPC) reacted swiftly by reducing the policy repo rate sizeably by 115 bps in a span of two months (March-May 2020). Unlike advanced economy (AE) central banks which eased rates close to the zero-lower bound, we did not reduce the policy repo rate below our inflation target of 4 per cent. Together with other actions in the liquidity front, this helped us in supporting growth without fuelling inflationary pressures. This also helped in undertaking a faster reversal of stance later, without being market disruptive.