'Rate cut transmission to help ease financial conditions'

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SME Times News Bureau | 23 Oct, 2020
The ongoing transmission of past monetary policy actions would help ease financial conditions further, RBI Governor Shaktikanta Das had said during the previous monetary policy committee meet.

According to the minutes of the MPC meet released on Friday, Das said: "The ongoing transmission of past monetary policy actions would help ease financial conditions further."

The statement assumes significance as past rate cut transmission will provide lower interest rates which in effect is expected to trigger consumption and economic revival.

Besides, the Governor said that there exists space for future rate cuts if the inflation evolves in line with the expectations.

"This space needs to be used judiciously to support recovery in growth," he said.

Das said that monetary policy at this stage has to provide adequate support to ensure a robust revival of the economy from the devastating effects of Covid-19, while at the same time ensuring that any persistence of elevated inflation does not lead to unanchoring of inflation expectations.

"With the supply side disruptions that are seen to drive the current inflationary pressures likely to be transient and wane out in months ahead as economy normalises, there is merit in looking through the current high levels of inflation and persevere with the accommodative stance for monetary policy as long as necessary to revive growth on a durable basis," Das said.

"Moreover, taking into account the projected moderation in inflation and the large output loss, I vote to keep the policy rate unchanged at present and continue with the accommodative stance, during the current financial year and into the next financial year, at the least. This would help to reduce uncertainty and market volatility. This would also enhance confidence in the monetary policy resolve to support the growth recovery process while ensuring that inflation remains within the target," he added.

The penultimate meet of the MPC in 2020 was conducted from October 7 to 9.

Accordingly, the MPC decided to maintain the repo -- or short-term lending -- rate for commercial banks at 4 per cent on the back of persistently high inflation, fanned in part due to supply side disruptions along with seasonal factors.