RBI may reduce interest rates again?
RBI Governor Shaktikanta Das admits that there is scope for further steps in monetary policy, but at present, he is in favor of saving his weapons for future use. He said that they should be used at the appropriate time for economic growth. This has been revealed in the details of the recent meeting of the Reserve Bank’s Monetary Policy Committee (MPC).
Information on the proceedings of the three-day meeting of the Reserve Bank’s Monetary Policy Committee held earlier this month was released on Thursday. The committee, headed by Governor Das, did not change the policy rates while maintaining the status quo. However, the committee kept its stance liberal, indicating the possibility of further rate cuts if needed to support the Corona-affected economy in the future. According to details, Das also said that it would be wise to wait for a strong assessment of growth and inflation at all levels. Das said that since February 2019, the overall policy rate has been cut by 2.50 percent. “In such a situation, we should stop for some time and see the effect of this cut in the financial system,” he said. Das said, it would be prudent to wait for a strong assessment of growth and inflation outlook on this occasion,
The economy is slowly opening up, supply bottlenecks seem to be decreasing and the pattern of getting price information is stabilizing. The governor said that there is likely to be a delay in repair of investment demand due to lower capacity utilization between domestic and external demand. He said real GDP is expected to shrink in the first half of the year, and the growth is expected to be negative for the entire fiscal year 2020-21.
Das said that pressure on the possibility of a sharp decline in economic growth in the entire food and consumer prices index excluding food and fuel is a matter of grave concern. He said, as I have been saying since October 2019, monetary policy has been geared towards supporting the economic reform process. However, there is scope for further steps under monetary policy, but in this situation we should keep our weapons safe and use them judiciously in the future. RBI Deputy Governor and Member of MPC Michael Devvrat Patra, cautious about the economy’s moderation, said that while it improves, which is expected to be slow, it is expected to worsen before it gets better. is. He said that the sustainable revival of the economy depends on factors such as resuming activity in various sectors, restoring employment, reducing financial stresses of families, businesses and financial secondary bodies, restoring confidence.
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RBI Executive Director Mridul K Sagar said the recovery path is essentially linked to the trend of the epidemic in the coming years. Until it is restored to normalcy, it will be difficult to recover. Ravindra H Dholakia, an external member of the committee, said that there are a lot of uncertainties about the macroeconomic environment. Dholakia said, although the current circumstances are indeed extraordinary, the MPC should insist on assuming the given responsibility of keeping inflation within the upper limit of six percent. Committee member Pami Dua believes that the best strategy would be to adopt a waiting and review strategy at this juncture and keep an eye on the data coming to assess the emerging macroeconomic situation. External member Chetan Ghate said that he has been advocating for a more cautious approach to policy rate cuts since February 2019. The next meeting of the Reserve Bank’s Monetary Policy Committee is scheduled from 29 September to 1 October 2020.