oppn parties RBI Maintains Status Quo On Policy Rates, Doesn't Suck Out Excess Liquidity

News Snippets

  • Amidst loud attack on the government for trying to change the Constitution, PM Modi says the Constitution is Gita, Bible and Quran for the BJP government
  • PM Modi says Congress circulating meat cooking and eating videos during Navratri and the month of Savan is indicative of its 'Mughal' mindset
  • Medical journal Lancet has said that medical data from India needs more transparency for correct analysis and policy action
  • India issues advisory for citizens to refrain from travelling to Iran and Israel as conflict escalates in the Middle-East
  • Rameshwaram Cafe blast accused arrested in Bengal hid in several Kolkata lodges before going to Digha in Medinipore from where they were arrested in a joint operation by the NIA and the state police
  • AAP leader Atishi says Centre is laying the groundwork to impose President's rule in Delhi
  • Elon Musk likely to discuss Starlink too with PM Modi
  • Elon Musk likely to discuss Starlink too with PM Modi
  • Currency in circulation rose by Rs 1.3 lakh crore in one year from FY23 to FY24
  • Gold jumps to nearly Rs 74000/ 10gm on MCX
  • Retail inflation was at 5-month low in March and IIP was at 4-month high
  • Stock markets crash on Friday - Sensex tumbles 793 points to 74244 and Nifty 234 points to 22519
  • Legendary boxer Mary Kom resigns as chef-de-mission of Paris Olympics squad citing personal reasons
  • IPL: DC beat LSG by 4 wickets as Kuldeep Yadav bowls a dream spell to restrict LSG to just 167
  • Bombay HC says Senior Citizens Act not a tool to settle property disputes but a law to ensure that seniors are not treated harshly and to resotre residential rights in houses they might have gifted to their children in their lifetime
West Bengal Police helps NIA arrest two Rameshwaram Cafe blast accused from Digha
oppn parties
RBI Maintains Status Quo On Policy Rates, Doesn't Suck Out Excess Liquidity

By Ashwini Agarwal
First publised on 2020-12-07 08:26:03

How times have changed! An economy battered by the slowdown in demand and the pandemic-related disruption has brought about a sea change in the outlook of the Monetary Policy Committee (MPC) of the RBI. Despite inflation that has not been tamed for more than four months now, the MPC has decided to hold policy rates in December. Earlier, inflation was the main benchmark and keeping it at or below 4% (+/-2%) was the mantra. But now things have changed. Neither has the RBI changed the policy rates nor has it taken extreme steps to suck out excess liquidity in the market to tame the inflationary tendencies that show no signs of abating.

Treating inflation as a direct result of supply-side bottlenecks, the MPC is of the opinion that the constraints need to be removed and this can be done only by keeping an accommodative stance in the near term, maybe the rest of this financial year and the first quarter of the next. It has also ensured that growth is not restricted due to non-availability of funds by announcing a series of measures to extend long-term credit availability for stressed sectors. This is most welcome.

In the absence of the long-awaited investment by the Centre in infrastructure projects, the economy has been left to its own devices to find the pre-Covid growth level. It can only be done if demand picks up. If the RBI were to suck out excess liquidity at this juncture, demand will drop further. Handholding of stressed sectors is as necessary as it is of sectors that are showing signs of strong revival. Liquidity can be sucked out as and when demand overtakes supply and the RBI has in-built mechanisms to flag such a situation and take corrective measures.

The RBI's stance is going to boost the sentiment and is likely to encourage entrepreneurs to set up new projects or expand existing ones. Demand is also likely to pick up in the next quarter as vaccines make an appearance and the people pick up the pieces of their lives post the pandemic. There is encouraging news on the hiring front as tech companies have picked up employees from the campuses at good salaries. Small businesses are also showing signs of making a comeback. Only the core sector needs a push and government investment in infrastructure is the key to that. If the stir by the farmers does not escalate into an ugly and debilitating fight, there are all signs that the economy will recover fast.