Das reiterated his comments after the policy review on August 6 and listed out the benefits which have accrued because of the rate cuts from the perspective of lowering the cost of borrowing in the economy.
The Reserve Bank has not exhausted its instruments or ammunition, including those related to rate cuts, to deal with the impact of the coronavirus pandemic, Governor Shaktikanta Das said on Thursday. He also said that the RBI wanted to keep its gun powder dry and hence opted for a status quo at the last policy review earlier this month. Speaking at a webinar organised by the financial daily Business Standard, Das responded to a specific question on whether the RBI — which cut policy rates in two moves since the onset of the pandemic — front-loaded its calls and what is it left with to tackle further impact.
“We have not exhausted our policy options, whether it relates to rate cuts or any other aspects of central banking. We have not exhausted our instruments or ammunition,” he said. With concerns being raised after the hardening of yields of government securities lately, Das said it will be incorrect to say that the RBI’s moves have not worked.
He said the bond yields have hardened only in the last fortnight, and used to hover between 5.70 to 5.79 per cent range for the benchmark security during the last few months. However, the same have gone up to over 6.10 per cent lately, he acknowledged. He also noted that the RBI’s job is to ensure smooth functioning of the markets.
Das reiterated his comments after the policy review on August 6 and listed out the benefits which have accrued because of the rate cuts from the perspective of lowering the cost of borrowing in the economy. It can be noted that the central bank has reduced rates by 1.15 per cent in two rate cut moves till the surge in inflation to beyond its comfort level prevented it from acting at the last policy. However, the policy continues to be in the accommodation stance, which means the central bank can act as and when it sees space.
Generally, the policy transmission happens first in the money markets followed by the lending to other segments of the economy. Das also said prevailing uncertainties have led the RBI not to come out with its estimates on both growth and inflation, and promised that it will do so once the pandemic ebbs. He explained that something like growth is not just dependent on domestic factors but international factors also play an important role in determining the growth trajectory.
A central bank has to give a number in a very responsible manner and cannot keep modifying the same, he added.
Further, Das said any central bank needs to be less predictable and should surprise the market with its moves and added that it is not suppressing or holding back any information.
At the same time, the RBI’s responses are shaped by the evolving scenarios, he said, pointing to the targeted long term repo operations as one of the examples, where the central bank wanted to equip certain segments with liquidity.