Continued political support crucial for sustainable economic recovery: RBI Governor

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After the Monetary Policy Committee meeting earlier this month, the RBI decided to keep its policy rates at historic lows for the 10th time in a row

After the Monetary Policy Committee meeting earlier this month, the RBI decided to keep its policy rates at historic lows for the 10th time in a row

Amid prolonged uncertainty, continued policy support will be crucial for a sustained economic recovery from the coronavirus pandemic, Reserve Bank Governor Shaktikanta Das said at the recent Monetary Policy Committee meeting.

“In this period of prolonged uncertainty, it would be wise to remain nimble and respond in a gradual, calibrated and well-telegraphed manner to emerging challenges,” Das said, according to the minutes of the MPC meeting released by the Reserve Bank. Thursday.

Observing that the economic recovery from the pandemic remains incomplete and uneven, he said, “continued support from various policies remains crucial for a sustainable recovery.” The governor said the new surge in international crude oil prices, however, requires close monitoring.

“We need to remain alert to domestic inflation risks stemming from rising international commodity prices due to exogenous factors, including geopolitical developments. While core inflation remains high, demand pressures are still moderate, given the slowing economy,” he told the MPC meeting.

Following the three-day Monetary Policy Committee (MPC) meeting earlier this month, the RBI decided to keep policy rates at historic lows for the 10th consecutive time to support a sustained recovery in the economy from the pandemic.

The six-member MPC, which has been on hiatus since August 2020, voted unanimously to maintain the status quo on the repo rate and by a 5-1 majority decided to maintain the dovish policy stance as long as necessary.

MPC member and RBI Deputy Governor Michael Debabrata Patra said the Indian economy is facing headwinds as well as cross currents.

Referring to the headwinds, he said more than a billion vaccinations had been carried out but only 56% of the total population was fully vaccinated. The next billion “will be back strong,” he said.

He said economic activity in India appears to have weathered the third wave resiliently, but messages from high-frequency incoming indicators are mixed.

“It is safe to assume that the recovery may have lost momentum during Q4:2021-22 and Q1:2022-23. Inflation appears to be approaching an inflection point, after which it is projected on a downward trajectory throughout 2022-23,” Patra said while voting to hold the key rate and keep the policy accommodative stance unchanged.

RBI Executive Director and MPC member Mridul K. Saggar said the Omicron variant, along with continued port congestions and supply shortages, have started to dampen global growth.

This, in turn, may act in accordance with Bernoulli’s principle of fluid pressure, narrowing the growth pipe with falling external demand acting to alleviate price pressures that have arisen on the supply side, did he declare.

On inflation, Saggar said headline inflation is expected to decline to around 5% in the first half of 2022-23, then decline further to the 4% target by the third quarter. of the next exercise.

However, the evolution of the monsoon and the dynamics of oil prices will have to be closely monitored, he added.

MPC member Jayanth R. Varma voted in favor of keeping the policy rate at 4%, but voted against the policy stance on two counts.

“First, a shift to a neutral stance is now long overdue. Second, the continued emphasis on addressing the adverse effects of the pandemic has become counterproductive and distracts the MPC’s attention from the core issue of tackling recessionary trends that date back at least to 2019,” Mr. Varma said.

MPC member Ashima Goyal opined that the current account deficit remains manageable and the overall balance of payments is in surplus with a growing share of foreign direct investment.

This time there is room to align the policy with the needs of the inner cycle, Ms Goyal said.

“Given the expected trends in inflation and growth and in order to moderate the overreaction of the market, I vote in favor of maintaining the current guidance and repo rate,” added Ms. Goyal.

Shashanka Bhide, a member of the MPC, said that to reinforce the positive growth trends in the economy, the need for favorable monetary and financial conditions remained a critical condition. Accelerating consumption and investment spending would require access to financial resources for both consumers and businesses.

He also voted to maintain the accommodative stance for as long as necessary to revive and sustainably support growth and continue to mitigate the impact of the pandemic on the economy, while ensuring that inflation remains in line. the target in the future.

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