RBI ‘behind the curve’ review: Patra says approach has served us well

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Responding to criticism that the RBI is “late” in pursuing accommodative monetary policy longer than other countries, Deputy Governor Michael Patra said on Friday that so far “the approach has served us well.”

India is ‘much better placed’ to weather future waves of the pandemic compared to being worst hit in the first wave after the nationwide lockdown, he said, expressing concern over the rise inflation due to crude prices.

It may be noted that the RBI has been criticized in some quarters for being “late on the curve” in maintaining its dovish stance favoring GDP growth even as pressures on its primary inflation target become evident and at a time when many of its peers have switched to tightening rates. Those making such calls have suggested the central bank change its policy stance to neutral.

The US Fed has signaled it will move to hike rates to rein in record inflation, which is already causing jitters in financial markets around the world. The comments affirming the effectiveness of the RBI also come days before the Union budget which will be presented on February 1.

“Yes, there have been criticisms that RBI has fallen behind the curve, but only time will tell if India has done it right or not. So far, the approach has served us well. and helped us chart a course for the future with a difference from the rest of the world,” Patra said, speaking at the 18th CD Deshmukh Memorial Lecture organized by the Council for Social Development.

Patra said the multitude of more than 100 measures taken by the central bank since the start of the pandemic, which included conventional measures like rate cuts and also unconventional measures, contributed significantly to the establishment. a recovery of the Indian economy.

Conceding that the impact of the measures still does not unravel, Patra said that “the general state of the economy and the financial markets, what these measures sought to address, provides evidence of whether or not the RBI’s pandemic response”.

Patra said that even before the start of the pandemic, the economy was already in a “cyclical downturn” with growth decelerating to a ten-year low, which forced the Monetary Policy Committee to turn dovish in February 2019 itself. and added that the central bank had already cut its policy rates by a total of 1.35% by February 2020.

GDP contracted 24.2% in the first quarter of FY21, which was one of the deepest in the world, and the experience of the global financial crisis in 2008, where central banks led the fight, spurred the RBI into action, he said. , adding that more than 100 measures have been taken to address stress at the system level as well as in specific sectors.

“I wouldn’t risk the audacity to preempt the judgment of history, but today India is in a much better position to deal with future waves of the pandemic compared to the first wave,” Patra said. , noting that GDP is expected to grow 9.2% in FY22 after contracting 7.3% in FY21 on export growth.

In remarks that come as oil prices hit a seven-year high of $90 a barrel, Patra called inflation “high” on commodity prices, including crude oil, but admitted that it had surpassed the highs seen during the pandemic.

Meanwhile, in other concerns, he said employment had yet to fully recover and labor force participation also remained low. Bank lending has started to accelerate as tensions on lenders’ balance sheets ease, but private consumption and investment are still under way.

Restoring livelihoods and reviving MSMEs is a formidable task ahead of us, Patra said optimistically.

Patra also pointed to Governor Shaktikanta Das’ 13 statements during the pandemic as the leit motif around which RBI’s policy response was shaped and also called them a policy instrument in light of the fact that the central bank uses its conventional options.

The RBI shuns the glare of the spotlight but is always ready to act, he said, adding that the central bank will learn from the pandemic and emerge stronger and more resilient to pursue the price stability mandate while keeping the growth objective in mind, Patra said.

(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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