TheNFAPost Podcast
1

Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday said the Monetary Policy Committee (MPC) has decided to keep policy rates unchanged. The policy repo rate under the Liquidity Adjustment Facility (LAF) remains unchanged at 4%. The reverse repo rate under the LAF remains unchanged at 3.35% and the Marginal Standing Facility (MSF) rate and the Bank Rate at 4.25%.

The MPC at its meeting on Friday also decided to continue with the accommodative stance as long as necessary – at least during the current financial year and into the next financial year – to revive growth on a durable basis and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.

Also, the MPC pegs real GDP growth at 10.5% in 2021-22 – in the range of 26.2 to 8.3% in H1 and 6% in Q3.

The global economic recovery slackened in Q4 (October-December) of 2020 relative to Q3 (July-September) as several countries battle second waves of COVID-19 infections, including more virulent strains. With massive vaccination drives underway, risks to the recovery may abate and economic activity is expected to gain momentum in the second half of 2021.

In its January 2021 update, the International Monetary Fund (IMF) has revised upward its estimate of global growth in 2020 to (-)3.5% from (-)4.4% and increased the projection of global growth for 2021 by 30 basis points to 5.5%.

Global trade expected to rebound

Barring some emerging market economies, inflation remains benign on weak aggregate demand, although rising commodity prices carry upside risks. Financial markets remain buoyant, supported by easy monetary conditions, abundant liquidity and optimism from the vaccine rollout. Global trade is also expected to rebound in 2021, with services trade on a slower recovery than merchandise trade, the MPC observed.

The rural demand is likely to remain resilient on good prospects of agriculture. Urban demand and demand for contact-intensive services is expected to strengthen with the substantial fall in COVID-19 cases and the spread of vaccination. Consumer confidence is reviving and business expectations of manufacturing, services and infrastructure remain upbeat. The fiscal stimulus under AtmaNirbhar 2.0 and 3.0 schemes of government will likely accelerate public investment, although private investment remains sluggish amidst still low capacity utilisation.

The MPC notes that the sharp correction in food prices has improved the food price outlook, but some pressures persist, and core inflation remains elevated. Pump prices of petrol and diesel have reached historical highs. An unwinding of taxes on petroleum products by both the centre and the states could ease the cost push pressures.

What is needed at this point is to create conditions that result in a durable disinflation. This is contingent also on proactive supply side measures. Growth is recovering, and the outlook has improved significantly with the rollout of the vaccine programme in the country, the MPC observed.

The Union Budget 2021-22 has introduced several measures to provide an impetus to growth. The projected increase in capital expenditure augurs well for capacity creation thereby improving the prospects for growth and building credibility around the quality of expenditure. The recovery, however, is still to gather firm traction and hence continued policy support is crucial. Taking these developments into consideration, the MPC in its meeting on Friday decided to continue with an accommodative stance of monetary policy till the prospects of a sustained recovery are well secured while closely monitoring the evolving outlook for inflation.

Previous articleGlobal Underwater Camera Market to Be Worth USD 15.30bn by 2027
Next articleGoogle Cloud Appoints Bikram Singh Bedi As India Head

LEAVE A REPLY

Please enter your comment!
Please enter your name here