The slack in the economy, as well as the fact that activity, was still catching up, also made it contingent upon policymakers to continue to maintain policy support so as to ensure that recovery becomes durable and broad-based.
Reserve Bank of India Governor Shaktikanta Das on Wednesday emphasised that the “considerable uncertainty” on how the growth-inflation dynamics would pan out in the immediate months, coupled with the fact that ongoing economic recovery was “not yet strong enough to be self-sustaining and durable”, had undergirded the central bank’s rationale in leaving interest rates unchanged and continuing with an “accommodative” policy stance.
“The recovery of aggregate demand hinges on private investment, which is still lagging,” Mr. Das said in his statement. “The MPC regarded the accentuation of headwinds emanating from global developments as the main risk to the domestic outlook, which is now somewhat clouded by the Omicron variant,” he added.
The slack in the economy, as well as the fact that activity, especially private consumption – which is still below pre-pandemic levels – was still catching up, also made it contingent upon policymakers to continue to maintain policy support so as to ensure that recovery becomes durable and broad-based.
Besides the emergence of the Omicron variant, the accentuated downside risks to the global economic outlook include the renewed surges of COVID-19 infections in a number of countries. Also, “notwithstanding some recent corrections, headwinds continue to be posed by elevated international energy and commodity prices, potential volatility in global financial markets due to a faster normalisation of monetary policy in advanced economies, and prolonged global supply bottlenecks,” the RBI Governor observed.
Asserting that the central bank’s monetary policy stance, while “primarily attuned to the evolving domestic inflation and growth dynamics” needed to also contend with the challenges posed by “imminent shifts in policy settings by systemically important global central banks” and the resultant spillovers from those policy actions, Mr. Das stressed that the RBI’s aim was to help ensure that domestic macro-fundamentals remained “resilient” amid “strong buffers”.
“In the current situation, it is important to keep inflation aligned with the target while focusing on a robust growth recovery,” he noted. “Simultaneously, the Reserve Bank remains cognisant of the need to ensure that financial conditions are rebalanced in a systematic, calibrated and well-telegraphed manner while preventing build-up of financial stability risks. Price stability remains the cardinal principle for monetary policy as it fosters growth and stability.
“Our motto is to ensure a soft landing that is well timed.”
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