February 23, 2021 3:09:03 am
The growth momentum needs to strengthen further for a sustained revival of the economy and for a quick return of the level of output to the pre-Covid trajectory, Reserve Bank of India (RBI) Governor Shaktikanta Das said.
According to the minutes of the RBI’s Monetry Policy Committee (MPC) meeting held on February 5, Das said growth, although uneven, is recovering and gathering momentum, and the outlook has improved significantly with the rollout of the vaccine programme in the country. “The sharp correction in food inflation has improved the near-term headline inflation outlook, although core inflation pressures persist,” Das said.
The MPC kept the policy rate — repo rate — unchanged at 4 per cent at the review meeting.
However, RBI Deputy Governor Michael Patra said concerns about financial stability have risen and the recent new highs scaled by equity markets could be driven by “irrational exuberance”.
Given the sharp moderation in inflation along with a stable near-term outlook, monetary policy needs to continue with the accommodative stance to ensure that the recovery gains greater traction and becomes broad-based, Das said.
High frequency indicators suggest that the economic recovery is normalising fast in both rural and urban areas, Das said. The agricultural sector has been resilient throughout the pandemic and its prospects appear bright in view of higher rabi sowing and comparatively better reservoir levels. Manufacturing activity is picking up. Although initial revival was propelled by pent-up demand, indications are that growth impulses are now being driven by pick-up in activity across manufacturing and services, he said.
According to Patra, the recent new highs scaled by equity markets could be driven by irrational exuberance. “It is difficult to tell in an environment of exceptionally low interest rates all around, large corporate profits but still no capex to write home about, and high levels of market borrowings,” he said, according to the minutes.
Banks have stronger capital buffers than during the global financial crisis, but stress in the financial sector’s balance sheets could intensify as the camouflage of moratorium, asset classification standstill and restructuring fades, Patra said.
MPC Member Shashanka Bhide said accommodative monetary policy stance is needed to strengthen ongoing economic recovery enabling expansion of both output and demand.
Ashima Goyal, MPC member, said inflation presents a mixed picture. Prices of many food products have softened, bringing down headline inflation. Profiteering in retail supply has not been able to withstand excess supply, although data shows only the beginning of reduction in retail margins, Goyal said.
📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines