India held its ground and is among a few countries that have retained an accommodative monetary policy that “has served us well” despite some views that “we have fallen behind the curve”, Reserve Bank Deputy Governor Michael D Patra said on Friday.
This is at a time when “several emerging market economies (EMEs) were jumping on to the bandwagon of tightening monetary policy and advanced economies (AEs) were announcing normalisation or joining their EMEs in raising policy rates,” he added.
“Only time will tell whether or not India has got it right but so far, this approach has served us well and helped in charting a course into the future which is different from the world,” Patra said while addressing the C D Deshmukh Memorial Lecture organised by the Council for Social Development, Hyderabad.
He said the Reserve Bank of India (RBI) remains committed to revive and sustain growth on a durable basis and continue to mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward.
He also said the RBI’s measures have contributed significantly in engineering the turnaround in the economy, supported by rising financial inclusion and digitalisation. “We are on course to becoming among the fastest growing economies of the world, but there is far to go. Private consumption and investment are still work in progress. The restoration of livelihoods and revival of MSMEs is a formidable task that lies ahead.”
According to Patra, employment has yet to recover fully though, and labour participation remains low. Bank credit has begun to gain pace, helped by easing of stress in banks’ balance sheets. “Inflation has eased from pandemic highs to more tolerable levels in recent months, although it remains elevated amidst high commodity prices, including of crude,” he said.
“The RBI’s measures brought down borrowing costs to their lowest in 17 years and narrowed spreads across rating categories on corporate bonds, commercial paper and debentures to pre-pandemic levels,” Patra said.
By engendering congenial financing conditions, the RBI supported the recovery. Governments of various levels and corporates utilised this opportunity to raise a record volume of resources from financial markets, the RBI Deputy Governor said.
In the corporate sector, deleveraging was facilitated and high-cost debt could be replaced, reducing vulnerabilities and preparing the sector to participate in the ongoing recovery.
Abundant liquidity and the RBI’s measures enabled a quick and full transmission of policy rate cuts to deposit and lending rates, easing the cost of funds for bank clientele, Patra said.