MPC: Covid surge biggest challenge to ongoing economic recovery, says Das | Business Standard News

Clipped from: https://www.business-standard.com/article/economy-policy/mpc-covid-surge-biggest-challenge-to-ongoing-economic-recovery-says-das-121042200890_1.html

The RBI governor also said that global financial markets have turned volatile over inflation fears in advanced economies and rising commodity prices, posing risks to the domestic outlook

Rapidly rising coronavirus cases are the single biggest challenge to ongoing recovery in the Indian economy, said Reserve Bank of India (RBI) governor Shaktikanta Das during the latest monetary policy meeting, according to the minutes released by the central bank.

“The need of the hour is to effectively secure the economic recovery underway so that it becomes broad-based and durable. The renewed jump in coronavirus infections in several parts of the country and the associated localised and regional lockdowns add uncertainty to the growth outlook,” Das said.

During the policy meeting, the RBI decided to leave benchmark interest rate unchanged at 4 per cent. The central bank also retained its growth outlook for the financial year started April 1 at 10.5 per cent, unchanged from its February outlook.

The members of Monteray Policy Committee (MPC) were almost unanimous in coming to a conclusion that coronavirus surge and localised lockdowns could restrain growth impulses and prolong the return to normalcy.

The RBI governor has flagged risks to domestic outlook in the face of global financial markets turning volatile over inflation fears in advanced economies and rising commodity prices.

“Evolving CPI-based inflation trajectory is likely to be subjected to both upside and downside pressures,” MPC members have noted.

For the full year of 2021-22, retail inflation is projected at at 5 per cent, with 5.2 per cent for the first half and 4.8 per cent for the second half.

Acknowledging that the supply side pressures on inflation could persist, the MPC said that demand-side pull remains moderate.

“While cost-push pressures have risen, they could be partially offset with the normalisation of global supply chains.”

Commenting on the inflation outlook, Das said that a combination of high international commodity prices and logistics costs may push up input price pressures across manufacturing and services.

According to RBI deputy governor Debabrata Patra, risks to the recovery have become accentuated since the MPC’s February meeting due to new wave of infections and the inexorably slow pace of vaccinations.

“Growth uncertainty has increased with the second wave in Covid-19 in some states,” said Dr Ashima Goyal, an MPC member. However, she expressed confidence that the effect on growth could be marginal if complete lockdowns and bans on inter-state movement are avoided.

“Tightening should be gradual, however, not reversing for long beyond the unlock 4 in September 2020 that forbade restrictions on interstate movements and led to a sustained revival of economic activity,” Goyal said.

Another MPC member professor Jayanth Varma said that the economic recovery after the pandemic shock of 2020 remains uneven and incomplete, and the renewed jump in infections in certain parts of the country has increased the downside risk to the growth momentum.

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