Mumbai: The country’s economic growth momentum needs to strengthen further for sustained recovery, said Reserve Bank of India Governor Shaktikanta Das during the monetary policy committee meeting, according to the minutes released on Monday.
“Growth, although uneven, is recovering and gathering momentum, and the outlook has improved significantly with the rollout of the vaccine programme in the country. The growth momentum, however, needs to strengthen further for a sustained revival of the economy and for a quick return of the level of output to the pre-COVID trajectory,” he said.
During the MPC meeting held in February, RBI had left policy rates unchanged but signalled a calibrated normalization of some of the crisis-time measures taken following the covid outbreak to gradually wean the economy off excess liquidity.
RBI Deputy Governor and MPC member, Michael Patra said that while near term inflation outlook has improved, upside risks to inflation outlook persist. “Core inflation remains stubborn and requires close monitoring as it has the potential to render the recent fortuitous improvements in the macroeconomic outlook stillborn. Rising international commodity prices are being watched the world over with concern as heralding the return of inflation,” he said.
Patra also warned of rising concerns about financial stability, adding that the recent new highs scaled by equity markets could be driven by irrational exuberance.
RBI executive director and MPC member, Mridul Saggar delineated the policy dilemma of the central bank in managing the ₹12 lakh core government borrowing for the financial year and an additional borrowing of ₹80,000 crore for the remaining year.
“Monetary policy will need to lean against the wind to keep interest rates low to the extent possible. If central bank open market operation purchases are moderate, it entails the risk of crowding out of private investment; if they are large, it carries risk of reengineering inflation. However, with capacity utilisation rate currently at 63 per cent in Q2:2020-21 and likely to be about 70 per cent by end of the year, capex funding need of private sector are currently limited and the monetary fiscal coordination to support a larger public investment that can crowd-in private investment can work so long as it is followed by an unflinching commitment to strong fiscal consolidation thereafter,” said Saggar.
