RBI To Keep Policy Accommodative, But Wary Of Inflation

A second wave of COVID-19 remains a threat to the country’s economy and the central bank believes monetary policy needs to remain accommodative despite inflationary pressures, according to the minutes of the Monetary Policy Committee’s latest meeting, released on Friday.

The Reserve Bank of India left interest rates unchanged at that meeting two weeks ago, as expected.

Almost all members of the MPC said they see room for further easing, but a recent rise in price pressures would need to abate for them to use that space.

“This space needs to be used judiciously to support recovery in growth,” Governor Shaktikanta Das wrote in his minutes.

Structural reforms to unlock growth are needed but may lack support with growth and employment depressed, Deputy Governor Michael Patra said.

“In the absence of intrinsic drivers, the recovery may last only until pent-up demand has been satiated and replenishment of inventories has been completed,” Mr Patra said. “Empirical evidence suggests that consumption-led recoveries are shallow and short-lived.”

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