Move fast to ease liquidity, says RBI Governor Shaktikanta Das

Shaktikanta Das, Governor, Reserve Bank of India (RBI)

Shaktikanta Das, Governor, Reserve Bank of India (RBI)   | Photo Credit: Paul Noronha

Patra warns of dire outlook if growth threats not addressed aggressively

With economic growth expected to be in the negative territory for the current financial year, Reserve Bank of India Governor Shaktikanta Das emphasised on the need for going full throttle to revive consumption and investment.

“... given the enormity of a collapse in demand, the need is to move ahead full throttle to ease financing conditions further so as to revive consumption and revitalise investment,” Mr. Das. said in the meeting of the monetary policy committee (MPC) last month, the minutes showed.

After cutting interest rates by 75 basis points (bps) in March, the central bank further brought down the repo rate by 40 bps to 4% in May in a bid to revive demand amid a slowing economy. The RBI had said growth is likely to be in negative territory in the current financial year.

“Since the outbreak of COVID-19, the MPC has voted for front-loading its actions. In view of the deteriorating outlook, it is critical to reinforce these actions in sync with the space provided by the underlying conditions,” Mr. Das said, adding banks also need to be adequately capitalised since they are the key players in financing consumption and investment.

Mr. Das said the key challenge for monetary policy at this stage is to resuscitate domestic demand to avoid any harmful effect on income and employment in the short run and potential growth over the medium term, and for strengthening domestic demand, it is important to revive consumer and business confidence.

Michael Debabrata Patra, the Deputy Governor in-charge of monetary policy, pointed out that though private consumption is ‘tenuously holding on to positive territory,’ spending patterns have altered drastically away from the discretionary and to the essential.

“In fact, my view is that the damage is so deep and extensive that India’s potential output has been pushed down, and it will take years to repair… In the deliberations of the MPC, my view is that the threats to growth have to be addressed frontally and aggressively, or risk a more dire outlook,” Mr. Patra said.

He said the MPC has decided to remain accommodative as long as it is necessary to revive growth and mitigate the fallout of COVID-19 and monetary policy can inspire confidence among households and businesses to break the vortex of public preference for deposits over spending and banks’ aversion to lend and invest. “Ahead of turning to mend broken areas of activity, it is important to nurture the green shoots that have become visible – as in agriculture and allied activities – so that they take root and grow,” Mr. Patra added.

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Printable version | Jul 5, 2020 3:46:35 PM |

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