India’s six-member Monetary Policy Committee continued to see the need to support the fragile economic recovery, while looking through the current bout of inflation, show minutes of the meeting released on Thursday. The committee members also supported a return to state-based guidance given the level of uncertainty in the economy.
The MPC, at its meet earlier this month, kept the benchmark repo rate unchanged at 4%. The committee, in its resolution. maintained an accommodative stance.
Shaktikanta Das, RBI Governor
The rapidly rising cases of Covid-19 is the single biggest challenge to ongoing recovery in the Indian economy, said Das in the minutes. “The need of the hour is to effectively secure the economic recovery underway so that it becomes broad-based and durable,” he said.
The renewed jump in Covid-19 infections adds uncertainty to the growth outlook. In such an environment, monetary policy should remain accommodative to support, nurture and consolidate the recovery.
The projection of inflation rate at 5% for the full year 2021-22 takes into account both the upside and the downside pressures.
As part of the liquidity management strategy for 2021-22, the Reserve Bank’s objective would be to ensure orderly evolution of the yield curve and to avoid volatility in the government bond market.
Going forward, the RBI would continue to ensure ample surplus systemic liquidity and the system would remain in surplus even after meeting the requirements of all financial market segments and the productive sectors of the economy.
While the MPC’s forward guidance over the past year has been helpful in anchoring market expectations, the state-based forward guidance, which the committee has moved to, reflects a commitment towards securing sustainable growth, Das said.