Policy support key for the GDP recovery: RBI

Mumbai: Reserve Bank Governor Shaktikanta Das has pitched for policy support from all sides - fiscal, monetary and sectoral - to nurture recovery of the economy hit by the second wave of the coronavirus pandemic.

The dent on economic activity due to the second wave of the pandemic during April-May necessitated continuation of monetary measures to support the process of economic recovery to make it durable, Das had said while participating in the meeting of the Monetary Policy Committee (MPC) earlier in the month.

"Overall, the second wave of Covid-19 has altered the near-term outlook, and policy support from all sides – fiscal, monetary and sectoral – is required to nurture recovery and expedite return to normalcy," Das said, as per the minutes of the meeting released on Friday.

Going forward, the Governor said the pace of vaccination and the speed with which the second wave can be brought under control will have considerable bearing on the evolving growth as well the inflation trajectory. The Reserve Bank remains committed to undertake pro-active conventional and unconventional measures and to effectively channelling the systemic liquidity to alleviate stress of critical sectors which have borne the brunt of the second wave, he said.

Das, and the other five members of the MPC - Shashanka Bhide, Ashima Goyal, Jayanth R Varma, Mridul K Saggar and Michael Debabrata Patra - had voted for keeping the policy repo rate unchanged at 4.0 per cent. RBI Deputy Governor Patra observed that unlike in the first wave, supply conditions have remained relatively resilient in the second wave, but aggregate demand barring net exports has been dented and needs counter-pandemic policy support.

Even the turnaround in net exports is fragile and heavily dependent on the strength of the vaccination propelled revival in external demand, which may be partially offset by the terms of trade loss on account of the rise in international commodity prices, particularly crude oil, he noted.

Patra further said the MPC has created the necessary conditions for supporting growth by maintaining the policy rate at its lowest level ever. "The onus is on the Reserve Bank to operationalize the MPC's guidance on an ongoing basis by ensuring congenial financial conditions across the system as well as for specific sectors, instruments and institutions," he said.