COVID-19 spike is biggest challenge to India's recovery, writes RBI Governor in MPC minutes


A steep rise in COVID-19 infections across the country is the single biggest challenge to economic recovery, Reserve Bank of India Governor Shaktikanta Das wrote in his monetary policy committee (MPC) meeting minutes released on Thursday.

The MPC kept its key interest rate at a record low of 4% earlier this month and said monetary policy would remain accommodative until the prospects of a sustained recovery were well secured.

All six members highlighted the increased risks to economic recovery from the recent steep rise in coronavirus infections and said monetary policy must continue to support growth.

“Rapidly rising cases of COVID-19 is the single biggest challenge to ongoing recovery in the Indian economy. The need of the hour is to effectively secure the economic recovery under way so that it becomes broad-based and durable,” Das said.

India recorded the world’s highest daily tally of 314,835 new COVID-19 infections on Thursday as a second wave of the pandemic raised new fears about the ability of crumbling health services to cope.

“The economic recovery can come under risk if this new wave of infections is not flattened soon,” said Mridul Saggar, executive director at RBI and a member of the MPC.

“This is especially so as monetary and fiscal policies have already used most of their space to considerably limit loss of economic capital, though expansion of policy toolkits can still afford additional comfort,” he added.

All members agreed and said that the ongoing domestic vaccination drive would be key in containing the short-term risks to domestic economic recovery and mitigating the spillovers from global shocks.

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Authorities have announced that vaccines would be available to anyone over the age of 18 from May 1. But experts have said India won’t have enough shots for the 600 million people who will become eligible.

The MPC has already cut interest rates by 115 basis points since the pandemic began last year, extending an earlier easing cycle.

With inflation risks looming, the ability to lower rates further to support growth remains limited.

India’s March wholesale price-based inflation rose 7.39%, sharply above an analysts’ forecast for a 5.9% increase, while retail prices accelerated to a four-month high of 5.52%.

“Longer term inflation expectations remain broadly stable in spite of high volatility in food and fuel prices. Demand pull is still weak,” Michael Patra, deputy governor at the RBI wrote.

“I would continue to look through the recent elevation in inflation and remain focused on reviving the economy on a path of strong and sustainable growth.”



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