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'RBI to continue accommodative as recovery to take time'
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SME Times News Bureau | 06 Jun, 2020
There is near unanimity among Monetary Policy Committee (MPC) members
for the Reserve Bank of India to continue with its accommodative stance
as the economy, hit by Covid-19 pandemic, is expected to take more time
to recover.
According to the MPC minutes of the last meet, a
majority of members said that coronavirus outbreak has had a more
adverse impact on the economy than previously estimated and it would
take longer than the expected for the economy to show some semblance of
normalcy.
In the meeting, RBI Deputy Governor Michael Debabrata
Patra said the damage is "so deep and extensive" that India's potential
output has been pushed down, and it will take years to repair.
Another
MPC member, RBI's Executive Director Janak Raj said the impact of
Covid-19 on economic activity has turned out to be much more acute than
initially expected, with the nation-wide lockdown having been extended
from initial three to nine weeks.
He further said that
investment demand, is likely to be impacted severely for a variety of
reasons such as collapse in demand and excess capacity amongst others.
Similarly, concerns over an economic growth contraction was the other worrying factor, discussed by the members.
"Continuing
lockdown in the geographical areas that contribute a major share in the
Indian economy and worsening global economic situation due to Covid-19
has now created a distinct possibility of the real GDP growth in India
during 2020-21 to be in the negative zone for the first time in the last
40 years," MPC member Ravindra H. Dholakia was quoted as saying in the
MPC minutes.
"Even the nominal GDP growth may slip into the
negative zone. There are all symptoms of a recession - fall in aggregate
demand, negative real growth and high unemployment."
MPC member
Pami Dua said that GDP growth in FY 2020-21 is expected to remain in
negative territory, with some respite in the second half of the fiscal
year.
"The way forward in terms of restoration of economic
activity thus depends on the speed with which the pandemic is contained,
how quickly the Indian economy opens up, and how soon supply
disruptions are repaired and demand revives."
On future rate
cuts, MPC member Chetan Ghate said the strongest argument for a big rate
cut would be the dire growth outcomes because of Covid.
"However, such rate cuts should be saved for when the economy starts reviving, and not when we are in a lockdown," Ghate said.
"Rate
cuts, assuming that there is transmission and banks lend, works most
effectively when the economy is on the upside. The MPC should keep some
gunpowder dry."
According to RBI Governor Shaktikanta Das, the
RBI remains watchful and "shall not hesitate to use any conventional and
unconventional tool in its toolkit to revive the macro economy and
preserve financial stability while adhering to the inflation target".
On
May 22, the Reserve Bank reduced lending rates and extended the
moratorium period for interest payments on term loans to mitigate the
combined impact of demand compression and supply-side disruption on
account of Covid-19 pandemic.
The MPC that time reduced the repo rate by 40 basis points to 4 per cent from 4.40 per cent.
Consequently, the reverse repo rate has automatically been reduced to 3.35 per cent from 3.75 per cent.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
|
66.20
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64.50 |
UK Pound
|
87.50
|
84.65 |
Euro
|
78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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