Jayanth Varma: ‘No longer appropriate to stick to policy stance’ | Business News,The Indian Express

Clipped from: https://indianexpress.com/article/business/jayanth-varma-rbi-monetary-policy-7686076/

“I believe that monetary policy is no longer the right instrument to deal with the Covid-19 pandemic whose economic effects (as opposed to its health effects) have diminished greatly…,” Varma said at the MPC meeting, according to minutes released by the RBI.

RBI Governor Shaktikanta Das said there is growing uncertainty over the evolving global macroeconomic outlook.

Reserve Bank’s Monetary Policy Committee member Jayanth Varma has said the monetary policy is not the right instrument to deal with the Covid-19 pandemic and it’s no longer appropriate to stick to the policy stance first adopted in May last year.

“I believe that monetary policy is no longer the right instrument to deal with the Covid-19 pandemic whose economic effects (as opposed to its health effects) have diminished greatly and become more concentrated in narrow pockets of the economy,” Varma said at the MPC meeting, according to minutes of the meet released by the RBI. There is no evidence so far to suggest that the Omicron variant of the Covid-19 virus would change the picture materially, Varma said. The MPC had kept the Repo rate unchanged at 4 per cent and maintained the accommodative policy stance.

Varma said economic activity appears to have surpassed its pre-pandemic level, continued recovery is likely during the rest of 2021-22, and the prognosis is for healthy growth in 2022-23 as well. On the other hand, there is increasing evidence of inflation becoming persistent in the upper region of the tolerance band, though it is projected to remain within the band, he said.https://images.indianexpress.com/2020/08/1×1.png

“In this environment, it is no longer appropriate to stick to the monetary policy stance first adopted in May 2020 when the adverse economic effects of the pandemic were at their peak. I am therefore not in favour of the decision to keep the reverse repo rate at 3.35 per cent, and vote against the accommodative stance,” Varma said. Raising effective money market rates quickly towards 4% would demonstrate the MPC’s commitment to the inflation target, help anchor expectations, reduce risk premia, enhance macroeconomic stability, and allow lower long-term interest rates to be sustained for longer thereby aiding the economic recovery, he said.

RBI Governor Shaktikanta Das said there is growing uncertainty regarding the evolving global macroeconomic outlook. In the domestic front, even as the prospects for economic activity are improving, there is still a slack with key drivers like private consumption remaining well below their pre-pandemic levels, Das said.

“Given these uncertainties, continued policy support is warranted for a durable, broad-based and self-sustaining rebound, especially to nurture revival in sectors which are lagging and to safeguard those which are exposed to the evolving headwinds,” Das said. In this scenario, it would be prudent to watch out for growth signals becoming well entrenched while remaining vigilant on inflation dynamics. There is also a necessity to have a firm understanding of the impact of the Omicron variant, Das said.

India is being lashed by global spillovers, said RBI Deputy Governor Michael Patra. The main conduit has been financial markets so far but the channels themselves are diversifying. “The biggest risk of contagion is now from the new variant. Unless a clearer picture emerges on the near-term outlook, we must take guard and resume battle readiness again,” Patra said.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s