Central bank hopes measures will spur activity
MUMBAI: Amid lockdowns and global slowdown adversely impacting the economic activi t y, t he RBI, on Thursday, expressed hope that recent monetary and fiscal measures will mitigate the impact of covid-19 on domestic demand and spur growth once the normalcy is restored.
T h e RBI n o t e d t h a t t h e bumper rabi harvest and higher food prices during 2019-20 provided conducive conditions for t he s t r engthening of r ural demand, the transmission of past reductions in the policy rate to bank lending rates has been improving, and reductions in the tax rates and measures to boost rural and infrastructure spending were directed at boosting domestic demand more generally. However, the outlook is now “drastically altered”, it said.
The cental bank further said the sharp reduction in international crude oil prices, if sustained, could improve the country’s terms of trade, but the gain from this channel is not expected to offset the drag from the shutdown and loss of external demand.
“Significant monetary and liquidity measures taken by the RBI and fiscal measures by the government would mitigate the adverse impact on domestic demand and help spur economic a c t i vi t y o nce normalcy is restored,” it said.
Risks around the inflation projections appear balanced at this juncture and the tentative outlook is benign relative to recent history, it said. “But covid-19 hangs over the future, like a spectre,” the RBI said.
The report further said the situation globally is highly fluid and “incoming data produce shifts in the outlook for growth on a daily basis.” The global macroeconomic outlook is overcast with the covid-19 pandemic, with massive dislocations in gl obal production, s upply chains, trade and tourism, it said.
Financial markets across the world are experiencing extreme volatility; global commodity prices, especially of crude oil, have declined sharply, the central bank noted.
The report also said a decline in food prices is possible, which might be offset by potential costpush increases in prices of nonfood items due to supply disruptions.