BackAn avant garde RBI willing to go all out to fight covid-19, minutes show
All six members voted for a deep rate cut and going avant garde to minimise the impact of covid-19 on the economyMichael Patra believes that the lockdowns across states would lead to a sharp widening of the output gap
PremiumIndia’s central bank is deeply aware of its limitations in fighting covid-19, yet it is willing to go far into uncharted territory to preserve growth and financial stability.
That inflation would most likely allow it to do so is a small blessing in the case of the Reserve Bank of India (RBI).
The minutes of the monetary policy committee meeting held last month, ahead of its schedule, shows that all six members voted for a deep rate cut and going “avant garde" to minimise the impact of covid-19 on the economy.
Perhaps Governor Shaktikanta Das’ comment summarised the intent of the RBI. “We are living through an extraordinary time and the situation currently facing the country is unprecedented. It, therefore, becomes imperative to make all-out efforts to protect the domestic economy from the adverse impact of the pandemic," Das said according to the minutes.
This supports the series of unconventional measures the central bank announced such as the targeted long-term repos (TLTRO) along with the rate cut. TLTROs are to push banks to buy corporate bonds, making it easier for non-bank lenders and other companies to raise money.
Das' deputy Michael Patra believes that the lockdowns across states would lead to a sharp widening of the output gap. He also believes inflation is likely to soften sooner and faster. All this portends to more rate cuts going ahead.
Of course, the RBI hasn’t done much compared with other central banks such as the US Federal Reserve and the Bank of England which have essentially resorted to “print and spend".
That caution is perhaps reflected in member Chetan Ghate’s words. Ghate laid bare the limitations of central banks in fighting external shocks. “It (monetary policy) only helps to mitigate the worse effects of shocks, and speeds up the recovery," Ghate said. Member Pami Dua too preferred a lesser 50 basis points rate cut than the 75 bps done on the argument that the RBI should conserve its artillery for later.
The MPC minutes show that everyone thought it necessary to employ unconventional monetary policy tools. What differed was perhaps the extent and timing of them.
There is hope that a quick return to normalcy post lockdown would have the support of a pragmatic monetary policy.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
