oppn parties Monetary Policy: Prioritizing Growth

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  • While a US research frim Hindenburg says its analysis found the Adani group overleveraged and claimed that its bubble will burst very soon and that sent the price of group companies crashing (Adani companies lost a combined Rs 55000cr), Adani group said the report was 'baseless' and 'malicious'
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Monetary Policy: Prioritizing Growth

By Linus Garg
First publised on 2021-08-07 07:25:17

About the Author

Sunil Garodia Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.

The Monetary Policy Committee (MPC) of the RBI decided to maintain status quo on interest rates while maintaining the accommodative stance. Governor Shaktikanta Das was of the view that it is imperative to provide further support to revive the economy. However, the MPC revised the inflation outlook from 5.1% to 5.7% this year as fuel and food basket prices show no sign of going down in the near term. It also kept the growth forecast at 9.5% for FY22.

It is good that despite rising inflation (although within the limits prescribed by the RBI), the MPC has maintained status quo on rates as well as an accommodative stance. It is also good that the apex bank has not initiated any measures to squeeze out liquidity from the financial markets. The economy is showing signs of revival after the second wave and this is evident from impressive numbers from many quarters.

First off, GST collections once again topped the Rs 1 lakh mark in July after going down in the previous two months. Exports touched a record high of $35.2bn in July. The Purchase Manager's Index touched 55.3 points indicating increased activity in the manufacturing sector. Railways reported record freight bookings in July, surpassing the earlier record achieved in July 2019. The stock markets are on fire and IPOs are being lapped up by retail investors and institutions alike. There is a buzz around the economy and this is the time when RBI support is vital.

Although banks have reported that there are no quality projects that are coming up for appraisal and hence credit off-take is low, but that is because times were uncertain till now. It is hoped that entrepreneurs will now plan new projects or expand existing ones and the demand for bank loans will go up substantially from the third quarter of FY22. With interest rates low and consumer demand rising, this is the time when the economy will truly revive if the third wave of coronavirus does not play spoilsport.