Indian economy needs continued monetary support: RBI Governor Shaktikanta Das

Reserve Bank of India Governor Shaktikanta Das pressed for continued monetary support as economic recovery is delicately poised and growth is yet to take firm roots.

"It is felt that continued monetary support is necessary as the economic recovery process even now is delicately poised and growth is yet to take firmer roots," Das said in the minutes released on Friday.

The future trajectory of growth, however, is strewn with many challenges, most notably from how the pandemic will evolve. Overall, growth remains critically dependent on policy support and needs nurturing for sustained recovery, he said.

He said the external environment which had been supportive of aggregate demand over the past few months may lose momentum for a variety of reasons, including a surge in infections, supply bottlenecks and a spike in oil prices, and, the MPC needs to ensure India's recovery is durable and sustainable.

At this critical juncture, he said, policy actions have to be gradual, calibrated, well-timed and well-telegraphed to avoid any undue surprises.

Going forward, Das did not see inflation a major problem but said higher pump prices of fuel may translate into higher transportation cost.

“We continue to believe that the MPC will look through the supply side factors that are pushing up inflation, and change the stance only after there is clear evidence of a demand revival stoking prices upwards. This is unlikely until the February 2022 policy review. Moreover, the RBI may refrain from hiking the reverse repo rate, until the MPC changes the stance to neutral,” ICRA’s Adity Nayar said commenting on MPC minutes.

Another MPC member Ashima Goyal said demand is also uncertain beyond pent up demand and the festival season. Some slowdown in global growth and more surprises from Covid-19 are possible, although vaccination is progressing well. Data lags mean we do not as yet know the extent of scarring in small and medium enterprises (SMEs), contact intensive services and in employment.

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