Spillovers from imminent shifts in monetary policy by major global central banks and a possible jump in infections from the Omicron variant of the coronavirus could dent the Indian economy’s ongoing recovery, Reserve Bank of India (RBI) Governor Shaktikanta Das cautioned on Wednesday.
“The Indian economy is relatively well-positioned on the path of recovery, but it cannot be immune to global spillovers or to possible surges of infections from new mutations including the Omicron variant,” Mr. Das said, in a monetary policy speech.
“Hence, fortifying our macroeconomic fundamentals, making our financial markets and institutions resilient and sound, and putting in place credible and consistent policies will assume the highest priority in these uncertain times,” he said.
Mr. Das said that though globally economies were reaching pre-pandemic levels, the recurrence of COVID-19 waves in many parts of the world including the appearance of the Omicron variant, stubborn inflation and headwinds from elevated energy and commodity prices and continuing supply bottlenecks cast a shadow on the outlook.
“Given the evolving growth-inflation dynamics across countries, monetary policy is also reaching an inflection point, keeping financial markets edgy,” he said.
Dissent on stance
Earlier, the RBI’s Monetary Policy Committee (MPC) voted unanimously to hold interest rates and by a 5-1 majority opted to retain the “accommodative” policy stance ‘for as long as necessary’.
Accordingly, the benchmark repo rate remains unchanged at 4%, the marginal standing facility (MSF) rate and the bank rate stay at 4.25% and the reverse repo rate continues at 3.35%.
Stating that the economic recovery that had been interrupted by the second wave of the pandemic was regaining traction, but was not yet strong enough to be self-sustaining and durable, he said the downside risks to the outlook had risen with the emergence of Omicron.
The RBI retained its projection for GDP growth in the current fiscal year at 9.5%.
Acknowledging that cost-push pressures continued to impinge on core inflation, Mr. Das posited that “pass-through may remain muted due to the slack in the economy”. The MPC retained its full-year CPI inflation projection at 5.3%.
Noting that it was ‘important to keep inflation aligned with the target while focusing on a robust growth recovery’, Mr. Das asserted, “price stability remains the cardinal principle for monetary policy as it fosters growth and stability”.
“Our motto is to ensure a soft landing that is well timed,” he added.