“For UPI, we have already entered into agreements with countries in this region, for example, with Bhutan and other countries like Nepal and we are trying to provide that UPI facility to make cross-border payments much easier in this region. We have launched Central Bank Digital Currency. It's in a trial phase, we are moving about it very carefully, very cautiously because this is something where we are very careful and the approach has to be very cautious. If there is cloning or anything which happens, it can be very risky,” Das said on January 6 at the launch of the International Monetray Fund's (IMF’s) book South Asia's Path to Resilient Growth.
Das said that both UPI and CBDC could be two areas for international cooperation on digitisation. He said that the RBI and the Centre have initiated rupee settlement for international trade and they were in discussions with South-Asian countries to facilitate rupee settlement of cross border trade in the South Asian region. He said that could be another area which has a big potential for international cooperation in the years to come.
The governor said that he was not a believer in modern monetary theory and that any fiscal or monetary expansion has to be calibrated and targeted and cannot be unbridled.
“So, that is our view in the Reserve Bank and that's my view also… What I meant by unconventional monetary policy, I was referring to what we have done in the last three years in particular, after the onset of the COVID. When we went for rate reduction, reduction of policy rate and liquidity expansion, our liquidity expansion was not again unbridled. It was calibrated and targeted in most of the cases with specific sunset dates, that is, end dates,” Das said.
He said India’s monetary policy was targeted because it targeted long term repo and it was targeted to certain non-banking financial companies (NBFCs) which had a liquidity crisis and in another situation it was targeted to relieve the anxiety of the mutual funds segment.
“Therefore, all the liquidity expansion that we did, most of it was targeted, and most of it also had a sunset date. They were given out for one year, three years, and most of it has come back in that one year window, in the three year window. Whatever is left behind will come back in March 2023,” Das said.
He said that calibrated monetary policy helped RBI to deal with the problem of pulling out the liquidity. Which is easy to inject liquidity, but difficult to pull it out. “And we did not want to find ourselves in the Chakravyuh situation, the famous Chakravyuh in the Mahabharata. We didn't want to find ourselves in that kind of a situation,” Das said.
Das also said that controlling inflation was one of the key policy priorities for South Asian countries and that the region was vulnerable to imported inflation due to its heavy reliance on fossil fuel imports. He also stressed that raising productivity, controlling external vulnerabilities, tourism promotion, and co-operation on green energy would be the other priorities for South Asia.
India has been trying to control spiralling inflation. Inflation remained beyond RBI’s upper tolerance level for 10 consecutive months in 2022 and then fell to 5.88 per cent in November. To reign in inflation, RBI has opted for aggressive rate hikes since May. RBI has increased lending rates totalling to 225 basis points with its latest round of hike in December.