Mumbai: RBI Governor Shaktikanta Das has emhasised that although there is headroom for further monetary policy action, the “arsenal” has to be kept dry and used judiciously for promoting growth which has been hit hard by the COVID-19 pandemic, according to the MPC minutes released on Thursday.
After a three-day brainstorming earlier this month, all the six members of the Das-headed Monetary Policy Committee (MPC) had opted for a status quo and left interest rates unchanged.
However, the MPC maintained an accommodative stance, implying more rate cuts in future if the need arises to support the coronavirus-hit economy.
As per the minutes, Das also said it would be prudent at this stage to wait for a firmer assessment of the outlook for growth and inflation.
“It would be prudent at this stage to wait for a firmer assessment of the outlook for growth and inflation as the staggered opening of the economy progresses, supply bottlenecks ease and the price reporting pattern stabilizes,” Das said.
The Governor noted that low capacity utilisation amid subdued domestic and external demand is likely to delay early revival of investment demand.
Real GDP is likely to shrink in the first half of the year, and growth for the full year 2020-21 is estimated to be negative, he said.
Generalised inflationary pressures across food and Consumer Price Index (CPI) excluding food and fuel, in a situation where growth is expected to contract sharply, is a matter of serious concern, Das added.
“As I have been reiterating since October 2019, monetary policy is geared towards supporting the economic recovery process. Although there is headroom for further monetary policy action, at this juncture it is important to keep our arsenal dry and use it judiciously,” he said.
He also felt that “we should wait for some more time” for the cumulative 250 basis points reduction in policy rate since February 2019 to seep into the financial system and further reduce interest rates and spreads.
Cautioning that outlook for the economy was grim, RBI Deputy Governor and MPC member Michael Debabrata Patra opined that even when it improves, the expectation is one of slow, hesitant recovery, with the situation likely to worsen before it gets better.

Press Trust of India