RBI guv pledges liquidity, rules out stagflation fears - Times of India

RBI guv pledges liquidity, rules out stagflation fears – Times of India


Mumbai: RBI governor Shaktikanta Das on Monday said that the central bank would continue to provide enough liquidity to support growth, adding that it has refrained from tightening monetary policy despite expectations.
The governor said that there was no prospect of stagflation in India like in some of the Western countries, and that there would be growth despite Ukraine war and that inflation was temporary.
“We have resisted all temptations and expectations for reversing our monetary policy, and moving away from our accommodative stance supporting growth into a kind of tightening regime,” Das said at the CII National Council meeting in Mumbai on Monday.
“The point is if you start initiating a premature demand compression through monetary policy action, then it would be counterproductive,” Das said. He clarified that he was not sending a signal on monetary policy, which would be decided by the monetary policy committee in their meeting next month. This was the governor’s first physical interaction after the pandemic and he noted that it was taking place during the second anniversary of the Janata curfew.
Highlighting the measures that the RBI took during the initial days, Das said that the central bank had made available Rs 17 lakh crore of additional liquidity through banks to bring down interest rates and ensure that the credit markets do not freeze. Of the Rs 17 lakh crore made available, lenders utilised Rs 12 lakh crore and have already returned Rs 5 lakh crore. Das said that learning from experience, the RBI had included a sunset clause in every pandemic-related measure.
“When you are injecting liquidity, you are entering what has been described as a ‘Chakravyuh’ — a lot of people know how to enter but very few people know how to exit. So when the RBI announced the measures, we planned for the exit routes also and we will come out of the ‘Chakravuyh’,” said Das.“Having said that, I would like to make it very clear that we will ensure there is abundant liquidity in the market to meet the productive requirements,” said Das.
On the situation arising out of the war in Ukraine, Das said that he saw that the current situation causing a shift to green energy, while at the same time advanced economies may be forced to restart investment in fossil fuels. He said that European countries are also likely to increase defence investment.
Expressing confidence in the strength of the Indian economy, Das shared that most of the 60 high-frequency indicators that the RBI monitors regularly are in the ‘green’. He further reasoned that unlike at the time of the taper tantrum of 2013, India has a very strong foreign exchange reserve position allowing it to finance a higher level of current account deficit, should the need arise.
On the exchange rate, he stated that the policy of the RBI has been to intervene only to address excessive volatility. The Indian rupee has depreciated only by 0.4% this fiscal till March 17th and given its reserves, the RBI is confident of exchange rate stability.
Responding to criticism that the RBI was behind the curve in tightening policy, Das said that India had stopped its asset purchases under the government securities acquisition programme (GSAP) in October 2021 ahead of the central banks in the West. He said that the RBI’s response to inflation should be looked at in the context of its targets.
In his opening remarks, CII president T V Narendran said that the RBI should continue with an accommodative monetary policy stance for some more time keeping the interest rates unchanged. “The risk in the monetary policy responding now to the possibility of higher inflation or even the reality of inflation being somewhat outside the tolerance band is that the move could stifle growth and we are not yet sure that the high crude and commodity prices are here to stay”.


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