Still at ease – The Hindu BusinessLine

Clipped from:

The MPC has predictably held rates, but a roadmap on liquidity conditions is needed

With consumer price inflation dipping in December and a narrative building on a V-shaped recovery, there would have been little justification for the Monetary Policy Committee (MPC) to resume its rate cuts in its latest review. It is, therefore, no surprise that it has held key policy rates. If at all there was a case for tinkering, it was on the continuation of its extra-accommodative liquidity stance, in a visibly reviving economy. But the MPC has chosen to stay the course on this, too, making a commitment to continue with this stance through this fiscal and the next.

Given that the RBI has kept its spigots of liquidity wide open since March, there are concerns that sustaining these policies for too long can lead to moral hazard on lending. It may, therefore, be prudent for the RBI and the MPC to begin discussing the macro triggers and timeline that would lead to a gradual wind-down of this stance, while communicating this clearly to markets.

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