JOIN USEconomy not strong enough yet, needs policy support: RBI
The Indian economy hauled itself out of its deepest contraction and is better prepared to deal with the Covid-19 pandemic but it is not yet strong enough for self-sustaining and therefore, needs policy support, the Reserve Bank of India (RBI) Governor Shaktikanta Das said Wednesday warning that domestic outlook was still crowded by the Omicron variant.
Given this slack in the economy and the ongoing catching-up of activity, especially of private consumption which is still below its pre-pandemic levels, the central bank decided to retain the prevailing policy interest repo rate at 4 per cent and continue with the accommodative stance.
The unchanged repo rates will help maintain status quo on the prevailing low-interest rate regime for some more time. This works well for all home and personal loan borrowers.
“The recovery of aggregate demand hinges on private investment, which is still lagging. The MPC regarded the accentuation of headwinds emanating from global developments as the main risk to the domestic outlook, which is now somewhat clouded by the Omicron variant of Covid-19,” Das said delivering the monetary policy.
Incoming information indicates that the consumption demand has been improving, with pent-up demand getting reinforced by the festive season. Rural demand is exhibiting resilience and farm employment is picking up with the robust performance of agriculture and allied activities, supported by a strong start to rabi sowing, continuing direct transfers under the 'PMKisan scheme' and extension of free foodgrains under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), he said, adding the overall economic recovery after the second wave of the pandemic is gaining traction but it is still not durable.
“Downside risks to the outlook have risen with the emergence of Omicron and renewed surges of Covid-19 infections in five countries. Besides, notwithstanding some recent corrections, headwinds continue to be posed by elevated international energy and commodity prices, potential volatility in global financial markets due to a faster normalisation of monetary policy in advanced economies and prolonged global supply bottlenecks,” he said although he retained the economic growth projections at 9.5 per cent for the current year ending March 31, 2022.
On inflation side however, he raised the projection for October-December quarter from the earlier 4.5 per cent to 5.1 per cent.
“The price pressures may persist in the immediate term. Vegetable prices are expected to see a seasonal correction with winter arrivals in view of bright prospects. Over the rest of the year, inflation prints are likely to be somewhat higher as base effects turn adverse; however, it is expected that headline inflation will peak in Q4 of2021-22 and soften thereafter,” he said.
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