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RBI Governor Shaktikanta Das Discusses India’s CBDC Advancements in Farewell Speech

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Shaktikanta Das, who has served as the 25th Governor of the Reserve Bank of India (RBI) since December 2018, bid farewell to his role this week after completing a six-year tenure. In his parting address, Das took the opportunity to reflect on the significant strides India has made in modernizing its financial infrastructure. Among the highlights, he pointed to the introduction of the UPI (Unified Payments Interface) payment system and the ongoing trials of the eRupee Central Bank Digital Currency (CBDC) as two groundbreaking accomplishments that have positioned India at the forefront of the global financial technology landscape.

India has quickly become one of the few countries making substantial progress in the research and development of CBDCs, with the RBI leading the charge. Das expressed pride in the nation’s role as a pioneer in this space, emphasizing that while many central banks are exploring CBDCs, very few have actually launched pilot projects. “Almost every central bank is talking about CBDCs, but the actual launching of a pilot project has been done by very few,” Das noted, pointing out the RBI’s leadership in this field. The introduction of a regulatory sandbox around CBDCs has been another area where the RBI has set a benchmark for other central banks to follow.

Central Bank Digital Currencies, or CBDCs, are digital versions of a country’s fiat currency, in this case, the Indian Rupee (INR). By utilizing blockchain technology, CBDC transactions provide a secure and immutable record, ensuring greater transparency and accountability in financial operations. These digital currencies hold the promise of reducing global dependency on physical cash, offering a more efficient and accessible alternative for transactions, especially in a world increasingly focused on digital solutions.

Das emphasized the potential of CBDCs, particularly the eRupee, in shaping the future of currency. “In fact, it is the future of currency – a true game changer,” he said. Das expressed confidence that the full benefits of CBDCs would soon be realized, with a nationwide rollout expected in the near future. As India continues to lead in this innovative area, the impact of CBDCs on the nation’s economy and financial system could be transformative, marking a significant milestone in the global evolution of money.

Indian Central Bank Likely to Delay Rate Cuts to 2025 Amid Inflation Concerns

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The Reserve Bank of India (RBI) is expected to keep its key repo rate at 6.50% during its December 4-6 meeting, according to a Reuters poll conducted from November 18-27. The move comes as surging inflation, fueled by rising food prices, has delayed forecasts for the central bank’s first rate cut in this cycle to February 2025, rather than December 2024 as previously anticipated.

Inflationary Pressures and RBI Stance

Annual retail inflation exceeded the RBI’s 6% tolerance threshold in October, driven by escalating food prices. Despite shifting its monetary policy stance to ‘neutral’ in October, the central bank remains cautious. Governor Shaktikanta Das has emphasized the risks of prematurely lowering rates, signaling a more conservative approach.

Of the 67 economists surveyed, 62 predicted no change in rates in December, while five expected a 25-basis-point (bp) cut. This marks a shift from last month’s poll, where a slight majority anticipated a cut to 6.25%.

“Governor Das has been one of the more hawkish voices on the Monetary Policy Committee. His extension could mean continued caution on rate cuts,” noted Shilan Shah, deputy chief emerging markets economist at Capital Economics.

Easing Cycle Delayed

The survey indicated a growing consensus that the RBI would initiate its easing cycle later, with 21 of 48 economists revising their forecasts from December to February or later. Median projections show the repo rate falling to 6.00% by June 2025, with no further cuts expected until early 2026.

Pranjul Bhandari, HSBC’s chief India economist, remarked, “RBI officials appear less inclined to dismiss spikes in vegetable price inflation and may opt to wait until February or April to ease rates.”

Global and Domestic Economic Impacts

The RBI’s cautious approach contrasts with other major central banks like the U.S. Federal Reserve, which is expected to continue cutting rates in 2025. Factors such as expansionary U.S. fiscal policies and potential tariff increases under President-elect Donald Trump’s administration could influence global monetary trends and limit rate cuts for emerging markets like India.

Domestically, India’s economic growth is projected to slow to 6.8% in the current fiscal year and 6.6% in the next, a decline from over 8% in FY 2023/24. Some economists warn that weaker-than-expected growth could pose downside risks to terminal rate forecasts.

“The interplay between global and domestic conditions will shape the pace and extent of rate cuts in the coming years,” said Gaura Sengupta, chief economist at IDFC Bank.

India’s Central Bank Chief Warns of Renewed Global Inflation Risks and Economic Growth Concerns

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India’s central bank governor, Shaktikanta Das, cautioned that global inflation could return, and economic growth may decelerate despite recent monetary policy successes. Speaking at CNBC-TV18’s Global Leadership Summit in Mumbai, Das acknowledged that central banks have achieved a “soft landing” amid repeated global shocks, but cautioned that the risks of inflation and slower growth persist due to ongoing geopolitical and economic challenges.

Das highlighted several factors exacerbating global instability, including escalating geopolitical conflicts, economic fragmentation, commodity price volatility, and the impacts of climate change. These factors have compounded uncertainty in financial markets, with conflicting trends across asset classes. Das pointed to the U.S. dollar’s recent appreciation, even as the Federal Reserve continues with its rate-cutting strategy, as one example of global market contradictions.

Investors are closely monitoring the implications of a potential second term for Donald Trump, given his stance on trade tariffs and immigration, both of which could stoke inflation and limit the Fed’s ability to continue rate cuts. The dollar index, which measures the dollar against six major currencies, recently surged to its highest level since November of last year, reflecting its strength despite the Fed’s easing.

In light of these global tensions, Das noted several market trends that illustrate the complex economic landscape:

  1. Bond Yields: Government bond yields are climbing, even as developed economies have pursued lower interest rates.
  2. Gold and Oil Prices: The prices of these commodities, which often move in sync, are now diverging markedly.
  3. Geopolitical Tensions vs. Market Stability: While geopolitical tensions are rising, global markets have remained resilient, reflecting an unusual tolerance to risk.

Turning to India’s economic performance, Das asserted that the nation’s economy remains robust and resilient, even amid global instability. He anticipates that inflation in India will moderate over time, although some volatility is expected. India’s economy has sustained growth throughout various global challenges, affirming its economic stability.

India’s Union Minister of Commerce, Piyush Goyal, expressed a desire for more supportive monetary policy, urging the Reserve Bank of India (RBI) to lower interest rates to further stimulate growth. The RBI recently maintained its interest rate at 6.5% and adopted a “neutral” policy stance, raising market hopes for potential rate cuts in the near future. Das refrained from commenting on the likelihood of a December rate adjustment, leaving room for speculation about the RBI’s next move.