Spike in COVID-19 infections biggest challenge to Indian economy: RBI Governor

The rapid rise in COVID-19 cases is the single biggest challenge to the ongoing recovery in the Indian economy, says RBI Governor Shaktikanta Das. He said the need of the hour is to effectively secure the economic recovery underway so that it becomes broad-based and durable.

“The renewed jump in COVID infections in several parts of the country and the associated localized and regional lockdowns add uncertainty to the growth outlook,” Das said in the minutes of the monetary policy committee meeting, which was released by the RBI on Thursday. “In such an environment, monetary policy should remain accommodative to support, nurture and consolidate the recovery. We need to continue to sustain the impulses of growth in the new financial year 2021-22. I vote to keep the policy rate unchanged and to continue with the accommodative stance as long as necessary to sustain growth on a durable basis, while ensuring that inflation remains within the target going forward.”

However, the RBI surprised markets by announcing a Rs 1 lakh-crore government bond purchase programme, which helped bring down interest rates. “Going forward, the RBI would continue to ensure ample surplus systemic liquidity and the system would remain in surplus even after meeting the requirements of all financial market segments and the productive sectors of the country,” the governor said. “Improving demand conditions, investment enhancing measures by the government and improving external demand impart an upside to growth prospects. The recent jump in COVID infections and its impact on economic activity, however, needs to be watched carefully.”

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Michael Patra, the deputy governor, also expressed concern over the economic recovery. “Monetary policy has to remain supportive of the economy until the recovery is more sure-footed and its sustainability assured.” Patra said risks to the recovery have become accentuated since the MPC’s February meeting with new waves of infections and the inexorably slow pace of vaccinations, moderation in several high-frequency sentiment indicators, global risks and spillovers.