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Synopsis: A disconnect between the commentary and policy action of RBI’s repo rate-setting panel could cost us dear in time to come.
According to RBI Governor, the Indian Economy is recovering from the impact of Covid. But still, there is a need to work on inflation, so that it will remain within the targets defined.
Is the Indian Economy improving in real terms?
Yes. According to the Finance Minister, the Indian economy is on a “Sustained path of revival”. As per RBI also, indicators for Q2: 2021-22 have gained momentum. International rating agency Moody has also revised its rating outlook for India from negative to stable.
What are the present challenges of the Indian Economy?
Inflation: There are various factors linked to it like elevated global crude oil and other commodity resources, Acute shortage of key industrial components and high logistics costs etc
Measures taken by RBI during the pandemic
During the pandemic, RBI had taken various steps to infuse liquidity. RBI took steps like ending G-SAP (Government Securities Acquisition Programme) and a VRRR (variable-rate reverse repo) auction calendar, but the system still has surplus liquidity.
During the pandemic, the RBI widened the repo rate to 65 basis points from 25 basis points. RBI also infused 2.37 trillion dollars of liquidity into the economy.
What should be done?
Recently, the RBI ended the G-SAP. But ending G-SAP alone is not enough. The economy with high liquidity today can lead to a high rate of interest tomorrow, so the RBI has to take enough steps to prevent it. The measures adopted during the time of pandemic need to change, evolve as the economy unfolds.
Source: This post is based on the article “The monetary policy of RBI has failed to walk its talk” published in Live Mint on 11th October 2021.