Rapidly rising coronavirus cases are the single biggest challenge to ongoing recovery in the Indian economy, said Reserve Bank of India (RBI) governor Shaktikanta Das during the latest monetary policy meeting, according to the minutes released by the central bank.
“The need of the hour is to effectively secure the economic recovery underway so that it becomes broad-based and durable. The renewed jump in coronavirus infections in several parts of the country and the associated localised and regional lockdowns add uncertainty to the growth outlook,” Das said.
Almost all members of the MPC have expressed concerns over the surge in COVID-19 infections causing to derail the economic recovery that we saw during September’20to February’21. ” Risks to the recovery have become accentuated since the MPC’s February meeting – new waves of infections and the inexorably slow pace of vaccinations; moderation in several high frequency sentiment indicators; global risks and spillovers” said internal member RBI deputy governor Michael Patra.
“Monetary policy has to remain supportive of the economy until the recovery is more sure footed and its sustainability assured” Patra said. The MPC unanimously voted for a status in policy repo rates at 4 per cent and decided to continue with its accommodative stance so long as it is required in its meeting two weeks ago. The MPC which is mandated of keeping consumer inflation in a band of 2-6 per cent seems to confident of retaining it within the band.
Mridul Saggar, ED, RBI, said the economic recovery, which is “beginning to lose some steam” can come under risk if this new wave of infections is not flattened soon. “This is especially so as monetary and fiscal policies have already used most of their space to considerably limit loss of economic capital, though expansion of policy toolkits can still afford additional comfort.”
Saggar added that such policies could bring added macroeconomic risks for countries where inflation is not as dampened as in advanced economies.
JR Varma, MPC Member too, saw the recovery as uneven and incomplete and supported the accommodative monetary policy.
The renewed jump in Covid-19 infections in certain parts of the country has increased the downside risk to the growth momentum.
On the other hand, inflation rates have been consistently well above the mid point of the target zone and is forecast to remain elevated for some time. This is a difficult situation, but I believe that the balance of risk and reward is in favour of monetary accommodation
Commenting on the nature of forward guidance, Varma, who had opposed time-based guidance, said the MPC must have the agility and flexibility to respond to data instead.
Ashima Goyal, MPC Member said the effect on growth could be marginal if complete lockdowns and bans on interstate movement are avoided.
Goyal added, Even the above 10% growth most analysts still expect for 2021-22 will barely take us to the level we had reached in 2019. We have to also make up for lost time; alleviate widespread job loss and income stress.