RBI’s Efforts towards ‘Pandexit’ Go beyond Policy Measures

In a proactive move, the Reserve Bank of India rescued the economy with its innovative—blended conventional and unconventional—monetary policy measures. Low-interest rates, aligning targeted liquidity, and granting moratorium coupled with forbearance to enable banks to restructure loans, mandated the Kamath panel to work out modalities to restructure corporate sector loans. After affirming stability and orderliness of the financial sector throughout the crisis period, it rightly signalled descent towards normalisation paving for pandexit manoeuvring the tool of variable reverse repo rate.

Despite the looming uncertainty about how the pandemic will play out, the Reserve Bank of India (RBI) is systematically working its way to guide the financial sector towards “Pandexit,” understanding well that it will be a bumpy path. In its monetary policy review on 6 August 2021, the RBI kept the policy rates intact for the seventh time in a row. It last reduced the repo rate to 4% on 22 May 2020. The repo rate continues at 4% and the reverse repo rate at 3.35%, despite the hovering risks of inflation amid near uncomfortable numbers. The RBI is explicit in its action on “whatever it takes to pursue growth as its prime objective.” The stance of the policy is accordingly kept accommodative to continue its supportive policy stance so long as it is necessary for ensuring durable growth and also until the COVID-19 impact is mitigated. Retention of the stance of the monetary policy was, however, not unanimous indicating some intermingled diverse views. These views may, in the future, tilt the decisions. But for now, the affirmative move combines into a medium-term assurance that can potentially add a tinge of comfort to the market players.

As COVID-19 broke out, there had been widespread concerns about “scarring effects” on consumers’ spending. It had been feared that lingering risk aversion and contagion worries would hold it back. But the pent-up demand is set to improve the consumer spending with the opening up of the economy. The craving for normality prevails in the economy. Whenever containment measures are relaxed in contact intensive services, demand would return swiftly increasing consumer spending. The early signs are visible with car and consumer durable sales going up.