RBI's 90th Anniversary: Challenges and Future Outlook

The Reserve Bank of India (RBI) recently marked its 90th anniversary. Governor Sanjay Malhotra highlighted the central bank's functions and its preparations for future challenges. As India has increasingly engaged with the global economy, the demands on the RBI have evolved accordingly. The RBI has successfully adapted to these changes, supported by government policies like the amendment of the RBI Act in 2016 for flexible inflation targeting.

Challenges Ahead

• External Risks:
  • The unpredictability of global, particularly US, trade policies increases external risks.
  • Global uncertainties could affect capital flows despite India's low current-account deficit.
  • The RBI holds sufficient foreign exchange reserves to manage volatility but must stay vigilant to differentiate between short-term volatility and long-term shifts.
• Price Stability:
  • Retail inflation is expected to decrease, allowing for potential monetary easing.
  • Climate change impacts could cause volatility in food prices, necessitating more frequent responses by the monetary policy committee.
  • Maintaining balance within the legal mandate might become increasingly challenging.

Banking Regulation and Supervision

• Regulatory Transparency:
  • The RBI needs to enhance transparency in its regulatory decisions.
  • Even with appointment approvals, mishaps are possible, indicating a need for improved supervision, especially of private sector banks.
• Digitisation Challenges:
  • Digitisation has increased financial inclusion and service quality.
  • Risks have multiplied, including potential increases in household indebtedness.
  • Round-the-clock banking heightens financial stability risks, requiring the RBI to prepare for these challenges.

In summary, the RBI needs to remain alert and agile in addressing both traditional and emerging challenges as India's economic and financial landscape continues to evolve.