Shaktikanta Das says RBI kept interest rates unchanged to keep arsenal dry, use judiciously

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Updated: Aug 20, 2020 7:00 PM

Shaktikanta Das said that despite a headroom for further monetary policy action, some more time should be given to the cumulative 250 basis points cut in the policy rate to seep into the financial system and further reduce the interest rates.

MPC, RBI, interest rate, policy rate, repo rateRBI Governor Shaktikata Das said that it is important to keep our arsenal dry and use it judiciously.

While the Reserve Bank of India’s Monetary Policy Committee decided to keep the policy rates unchanged in the meeting held earlier this month, RBI Governor Shaktikata Das said that it is important to keep our arsenal dry and use it judiciously. He added that despite a headroom for further monetary policy action, some more time should be given to the cumulative 250 basis points cut in the policy rate to seep into the financial system and further reduce the interest rates. He further said that given the uncertain inflation outlook, it is important to see the momentum in inflation, which is also dependent on effective supply-side measures. 

Retail inflation soared to 6.93 per cent in July, against a revised 6.23 per cent in June.  While food inflation reversed an easing trajectory witnessed in May and June to hit as much as 9.62 per cent in July, core inflation surged to a 21-month peak of about 5.87 per cent, reflecting underlying price pressure in the economy. The RBI has been taking steps to cushion the disruptions caused in the financial markets and the banking system, however, the transition is so far less than satisfactory. 

Also Read: Joblessness in India surges back in August so far; unemployment rate crosses 9%

The central bank said that on the domestic front, economic activity had started to recover, however, surges of fresh infections have forced re-clamping of lockdowns in several cities and states, which led several high-frequency indicators to level off. On the brighter side, it added that the agricultural sector has emerged as a bright spot and its prospects have strengthened on the back of good progress of the south-west monsoon.

Meanwhile, the pace of contraction of factory output moderated to 34.7 per cent in May from 57.6 per cent a month ago, with the easing of lockdowns. Consequently, all manufacturing sub-sectors, except pharmaceuticals, remained in negative territory. Also, June was the fourth consecutive month when the output of core industries contracted significantly. 

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