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Monetary policy tightening by RBI is several quarters away: Former Dy Guv

Monetary policy tightening by RBI is several quarters away Former Dy Guv


Monetary policy tightening by RBI is several quarters away: Former Dy Guv

The Reserve Bank of India (RBI) is expected to continue with its current accommodative stance to maintain sufficient liquidity in the system and monetary policy tightening is several quarters away as the economic revival has not reached the pre-Covid level, the apex bank’s former deputy governor R Gandhi claimed. He said the low-interest rate regime will continue to support the economic activities.

“In my assessment, normalisation or monetary policy tightening in India is several quarters away. Definitely, not in the current fiscal. Economy is reviving but we have not reached the absolute pre-Covid level of 2019-20,” Gandhi said at an event organised by the Bengal Chamber of Commerce and Industry on Friday. “RBI will do (monetary policy tightening) when the economy will be growing sustainably,” he said.

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The central bank had on August 6 kept interest rates unchanged at a record low as it chose to support economic revival over inflation. The six-member Monetary Policy Committee (MPC) voted in favour of retaining the main repurchase rate at 4 per cent but was split on continuing with the lower-for-longer stance. The RBI had last revised its policy rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting the interest rate to a historic low. This was the seventh straight meeting when it maintained the status quo.

But traders and analysts are seeing hints that India’s central bank is seeking to drain record liquidity from the banking system, as it is increasingly shifting its forex intervention to the forwards market. Earlier this month, the apex bank governor Shaktikanta Das had said, “As markets settle down to regular timings and functioning and liquidity operations normalise, the RBI will also conduct fine-tuning operations from time to time as needed to manage unanticipated and one-off liquidity flows so that liquid conditions in the system evolve in a balanced and evenly distributed manner.”

The next meeting of the MPC is scheduled from October 6 to 8. Gandhi acknowledged that NBFCs will gradually garner larger banking market share with more technological interventions. He also said low-interest rate regime will continue even though common people suffer due to decreasing deposit rates from banks.

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  1. Pingback: Akudo gets USD 4.2 mn in funding from Y Combinator, JAFCO Asia, others

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