Monetary policy reversal isn’t like rolling back a carpet, says RBI chief Shaktikanta Das

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Updated: November 10, 2021 9:43 PM

All through the pandemic, the central bank has consistently been maintaining that it will not leave any stones unturned to provide liquidity and support growth.

Shaktikanta DasBut what came to us as a surprise was the massive inflow of foreign capital, which has added a lot of liquidity into the system, Das noted. (File)

Claiming that monetary measures taken by the RBI to ensure ample liquidity for all sectors ravaged by the pandemic have been fruitful, governor Shaktikanta Das said monetary policy normalisation or unwinding is not as simple as rolling back a carpet but a much more complex and long-term process.

Das further said all the monetary and liquidity measures unveiled by the central bank since the outbreak of the pandemic in March 2020 have been very much in sync with the evolving situation.

All through the pandemic, the central bank has consistently been maintaining that it will not leave any stones unturned to provide liquidity and support growth.

“Whatever it takes to support growth will be taken,” Das has been reassuring the market at every bi-monthly monetary policy announcement since March 2020.

Addressing a function organised by financial daily Business Standard on Wednesday, the governor said, “What we are doing is rebalancing the liquidity in the system. Also, the concept of monetary policy unwinding is too much misunderstood. Monetary policy normalisation after a long crisis period is not like rolling back a carpet…”

Explaining further, Das said while announcing every liquidity enhancing measure, “we were also constantly assessing and analysing the downside risks to those measures and the fallouts from them on one hand and on the other, we have also ensured to the best of our abilities that we build-in enough safety valves. Therefore, I am not using the word normalisation. I am more comfortable using the word rebalancing”.

Noting that the liquidity enhancing measures unveiled since late March 2020 have a sunset clause and that they are all finite measures, he said, be it the LTRO, TLRO or CRR cuts, most of them have sunset dates.

“The CRR cut was for one year, and it has ended now. And so is the LTRO that was first given for three years, while the TLRTO was for one year and has ended now,” he said, adding thus a large part of the first stimulus dose has come back to the Reserve Bank.

And all these liquidity measures are for a finite period and come with a definite sunset clause. Of the Rs 7.5 lakh crore of additional liquidity infusion, a little less than Rs 7 lakh crore have already come back to us through the reverse repo window,” he said.

But what came to us as a surprise was the massive inflow of foreign capital, which has added a lot of liquidity into the system, Das noted.

“So, what we are doing now by what you call normalisation or unwinding is rebalancing the excess liquidity in the system,”’ he concluded.

 

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