“Risks to the recovery have accentuated since the MPC’s February meeting – new waves of infections and the inexorably slow pace of vaccinations, moderation in several high frequency sentiment indicators, global risks and spillovers,” RBI Deputy Governor Michael Patra told the meeting.
RBI Governor Shaktikanta Das also highlighted that the new surge in Covid cases could be more infectious due to mutations and could pose “the single biggest challenge to the ongoing recovery in the economy.”
“The renewed jump in Covid-19 infections in several parts of the country and the associated localised and regional lockdowns add uncertainty to the growth outlook. In such an environment, monetary policy should remain accommodative to support, nurture and consolidate the recovery,” Das said.
At the April meeting, the MPC unanimously voted to keep repo rate and reverse repo rate unchanged and their policy stance accommodative.
MPC member Ashima Goyal said the medical infrastructure could come under strain given the severity of the second wave. Her comment appeared prescient in the wake of the ongoing medical crisis around the country due to lack of hospital beds, medical oxygen and Covid-19 treatment drugs.
“The economic recovery can come under risk if the new wave of infections is not flattened soon. This is especially so as monetary and fiscal policies have already used most of their space to considerably limit loss of economic capital, though expansion of policy toolkits can still afford additional comfort,” said MOC member Mridul K Saggar.
Saggar said the restriction imposed to contain the second wave would likely limit the damage to the economy compared with the national lockdown, but will still retard full normalisation by a quarter or two.
While acknowledging the recent uptick in inflation, most of the members maintained that supporting growth remained a priority, especially in the wake of signs of high-frequency indicators hitting a plateau and a second wave.
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