MUMBAI: Reserve Bank of India (RBI) governor Shaktikanta Das said that risks stalking the global economy have amplified with the rapid spread of the Omicron variant, leading to countries scrambling for restrictions. Given the uncertainty, continued policy support was warranted for a durable, broad-based and self-sustaining recovery, Das said in the minutes of the monetary policy committee (MPC) meeting released on Wednesday.
In the meeting held between December 6 and 8, all members, except external member Jayanth R Varma, voted to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis. The other five in the MPC are external members Shashanka Bhide & Ashima Goyal, RBI ED Mridul K Saggar, and RBI deputy governor Michael Debabrata Patra.
“While the Indian economy is on its way to achieving the projected growth of 9.5% in 2021-22, there are still significant areas of concern. Private consumption — the mainstay of aggregate demand with a share of around 55% — is languishing below its level recorded two years ago, suggesting that we still have a distance to go in nurturing a more durable recovery,” said Das.
According to Patra, the global outlook has suddenly darkened because of the new variant. “The path of the recovery is still being shaped by the pandemic and its second-order effects. The question that is uppermost is: Has the global recovery peaked prematurely, leaving behind the scars of the pandemic?” said Patra.
According to Goyal, additions to durable liquidity have stopped and the next step is to decrease excess durable liquidity itself.
“Some of this will be absorbed as growth rises. Banks are already raising some deposit rates in anticipation of a rise in credit. Even as excess aggregate liquidity reduces, the RBI policies targeting liquidity at stressed sectors must continue,” Goyal said.
According to Varma, the current repo rate of 4% corresponds to a negative real rate in the range of 1-1.5% based on forward-looking inflation forecasts. “In my view, this level of rates is currently appropriate for reviving economic growth without excessive risk of an inflationary spiral,” said Varma.
In the meeting held between December 6 and 8, all members, except external member Jayanth R Varma, voted to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis. The other five in the MPC are external members Shashanka Bhide & Ashima Goyal, RBI ED Mridul K Saggar, and RBI deputy governor Michael Debabrata Patra.
“While the Indian economy is on its way to achieving the projected growth of 9.5% in 2021-22, there are still significant areas of concern. Private consumption — the mainstay of aggregate demand with a share of around 55% — is languishing below its level recorded two years ago, suggesting that we still have a distance to go in nurturing a more durable recovery,” said Das.
According to Patra, the global outlook has suddenly darkened because of the new variant. “The path of the recovery is still being shaped by the pandemic and its second-order effects. The question that is uppermost is: Has the global recovery peaked prematurely, leaving behind the scars of the pandemic?” said Patra.
According to Goyal, additions to durable liquidity have stopped and the next step is to decrease excess durable liquidity itself.
“Some of this will be absorbed as growth rises. Banks are already raising some deposit rates in anticipation of a rise in credit. Even as excess aggregate liquidity reduces, the RBI policies targeting liquidity at stressed sectors must continue,” Goyal said.
According to Varma, the current repo rate of 4% corresponds to a negative real rate in the range of 1-1.5% based on forward-looking inflation forecasts. “In my view, this level of rates is currently appropriate for reviving economic growth without excessive risk of an inflationary spiral,” said Varma.
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