‘Rising cases biggest threat to recovery’
MUMBAI: Rising Covid-19 cases constitute the single biggest challenge to economic recovery, the Reserve Bank of India (RBI) governor Shaktikanta Das told the monetary policy committee (MPC) earlier this month, according to the minutes released on Thursday.
Compared with the policy statement, the minutes read gloomy: Das said the recent jump in cases and its impact on economic activity needs to be carefully monitored.
“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 overall growth outlook,” Das said.
Contrast this with the policy statement earlier this month, when the central bank said: “The renewed jump in Covid-19 infections in certain parts of the country and the associated localized lockdowns could dampen the demand for contact-intensive services, restrain growth impulses and prolong the return to normalcy. In such an environment, continued policy support remains necessary.”
RBI executive director and MPC member Mridul Saggar, too, raised his pitch on the risks to economic recovery if the new wave of infections is not flattened soon. He added that health policies hold the key to India’s recovery as monetary and fiscal policies have already used most of the space through stimulus measures. “Learning effects on calibrating stringency of restrictions may keep economic costs of the second wave much lower than the first, but still retard full normalization by a quarter or two. Ramping up vaccination, testing and treatment hold the key to protecting economic recovery and health policies have become the first line of defence. Monetary and fiscal policies can only play a second fiddle,” Saggar added in the MPC minutes.
RBI deputy governor and the MPC member Michael Patra, who is usually the most hawkish among all members, however, softened his stance. He said the focus remains on reviving the economy.
“I would continue to look through the recent elevation in inflation and remain focused on reviving the economy on a path of strong and sustainable growth. An integral part of this approach would be to insulate domestic financial markets from global spillovers and volatility so that congenial financial conditions continue to support growth,” he added.
MPC member Jayant Verma said the challenges need timebased forward guidance amid the uncertainties and evolving economic state.
Since October the MPC has maintained an accommodative stance “during the current financial year and into the next financial year”, which is reflective of a time-based forward guidance. “I think it is not prudent to repose excessive faith in forecasts. Instead, the MPC must have the agility and flexibility to respond rapidly and adequately to whatever surprises new data may brings in the future. Timebased guidance is inconsistent with this imperative,” Verma said.