RBI says prospects brightening for economy as second wave of COVID-19 wanes

RBI Update


The central bank added that the trajectory of inflation is shifting down more favourably than anticipated. 

Prospects are brightening for the economy achieving escape velocity from the pandemic as the second wave wanes and preparedness for the future remains on war-alert status, the Reserve Bank of India (RBI) bulletin said on September 16.

Aggregate demand is gaining firmer ground, while on the supply side, IIP (Index of industrial production) and core industries mirror improvement in industrial activity and services sector indicators point towards sustained recovery, the Bulletin said.

On September 16, the RBI released the September 2021 issue of its monthly bulletin.

According to the bulletin, the trajectory of inflation is shifting down more favourably than anticipated.

“As pandemic scars heal and supply conditions are restored with productivity gains, a sustained easing of core inflation can be expected, which will reinforce the growth-supportive stance of monetary policy,” the bulletin said.

Earlier in the day, RBI deputy governor Michael Patra said the future course of monetary policy will be shaped by the evolution of growth and inflation. He was speaking at the Financial Markets Summit of the Confederation of Indian Industry, Mumbai.

“The outlook is overcast with the pandemic. Future waves may have to be navigated on the voyage beyond into a world that can live with COVID-19 without loss of life and livelihoods,” said Patra. “On this journey, the course of monetary policy will be shaped by the manner in which the outlook for growth and inflation evolves,” said Patra.

The MPC kept its key policy rate, repo, unchanged in the last round of monetary policy saying it will watch future data before arriving at a rate decision.

A highlight of this issue of the state of the economy is an analysis of the divergences in monetary policy actions between emerging market economies and their correspondence with underlying macroeconomic performance, the RBI said.

According to this analysis, countries that have tightened monetary policy are also growing/forecast to grow rapidly, with several of them being commodity and services exporters benefiting from the boom in commodity prices and revenge tourism.

Further, countries that are on a pause despite medium to high inflation are those where the economic rebound is not as sharp as the decline last year, the analysis showed.

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