Governor Shaktikanta Das has said the Reserve Bank will strive to get headline inflation to its 4 per cent target but flagged El Nino as a challenge to its efforts.

In an exclusive interview with PTI Bhasha at his office here, Das exuded confidence that the economy will grow at 6.5 per cent in FY24, as estimated by the RBI earlier. The central bank's rate hikes by a cumulative 2.50 per cent since May last year, coupled with supply-side measures from the government, have helped get the inflation down to 4.25 per cent in May from a peak of 7.8 per cent in April last year, Das said.

"We continue to be watchful on the inflation front. We expect inflation to be at 5.1 per cent in FY24, and we will continue to strive and get it down to 4 per cent," he added.

On the high borrowing costs, Das said interest rates have a direct relation with inflation, and the RBI can cut interest rates if the consumer price inflation cools down to 4 per cent or thereabouts on a durable basis. The governor explained that the Russia-Ukraine war, which led to a shoot-up in the commodity prices, led to a surge in inflation, but added that crude prices are not a concern from an inflation perspective now as they've come down to USD 76-76 a barrel.

Food inflation has also come down, Das said, adding that measures like the Food Corporation of India releasing wheat and rice stocks have also helped.

Targeted cuts in duties on certain products have also helped, he added. When asked about the challenges on the inflation front, Das pointed to 2-3 factors like the volatile international situation due to geopolitics and the monsoon situation domestically.

"Although there is an expectation of a normal monsoon, there are concerns around El Nino. We will have to see how serious it is. Other challenges are primarily weather-related events, which can have an impact on food inflation," Das said, adding that we will have to grapple with these uncertainties.

Meanwhile, on the growth front, Das said the RBI has taken all the factors into consideration while arriving at its estimate of a 6.5 per cent expansion in real GDP and is confident of the economy attaining the same even though other watchers like IMF estimate it to be much lower.

He said the bank credit growth of around 16 per cent is sustainable, and the RBI is watchful of the developments on this front. There is a lot of demand for credit from corporates as well, including for project loans as well, he said, underlining that the overall credit growth is broad-based.

The rupee has been less volatile in the calendar year 2023, and the domestic currency has strengthened against the dollar, Das said, reiterating that the RBI will continue with its efforts to reduce volatility.

Das said he is confident that the rupee will not get impacted even if the US Fed hikes rates, pointing out that the domestic currency has been stable, even in the face of a 5 percentage points increase in rates in the US.

The governor said the current account deficit (CAD) will be "eminently manageable" in FY24, as there are positives like higher services exports and lower crude prices working in our favour.

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