MPC minutes: RBI Gov says, growth momentum needs to strengthen further for a sustained revival of economy

RBI Gov said that growth, although uneven, is recovering and gathering momentum, and the outlook has improved significantly with the rollout of the vaccine programme in the country.

Feb 23, 2021 01:02 IST India Infoline News Service

Shaktikanta Das
The Reserve Bank of India (RBI) governor Shaktikanta Das in minutes of the Monetary Policy Committee (MPC) meeting, said that growth, although uneven, is recovering and gathering momentum, and the outlook has improved significantly with the rollout of the vaccine programme in the country.

He said, "High frequency indicators suggest that the economic recovery is normalising fast in both rural and urban areas. The agricultural sector has been resilient throughout the pandemic and its prospects appear bright in view of higher rabi sowing and comparatively better reservoir levels. Manufacturing activity is picking up. Although initial revival was propelled by pent-up demand, indications are that growth impulses are now being driven by pick-up in activity across manufacturing and services. Forward looking surveys conducted by the Reserve Bank signal greater optimism from manufacturing with the expectation of an expansion in production volumes and new orders in Q4:2020-21 and the following two quarters. The purchasing managers’ index for manufacturing is in expansionary zone and was above its long-period average in January 2021."

Further, the governor pointed out that trends in railway freight traffic, toll collection, goods and service tax collections, e-way bills and steel consumption suggest that services sector activity is also recovering. The purchasing managers’ index for services is in the expansion territory. Services and infrastructure sector reported increase in turnover in Q3 and expected further improvement through Q2:2021-22 as reported by firms participating in the Reserve Bank’s services and infrastructure survey.

"The multiple dimensions of normalisation of economic activity, as reflected in the movement of coincident and proximate high frequency indicators, suggest that in 2021-22 the Indian economy will expand by about 10.5 per cent over 2020-21. These projections are based on the assessment of multispeed recovery which is underway, wherein some sectors are witnessing smart recovery, while consumption in contact intensive sectors, being discretionary in nature, could be postponed in near to medium-term."

On inflation, Das said that the sharp correction in food inflation has improved the near-term headline inflation outlook, although core inflation pressures persist. Given the sharp moderation in inflation along with a stable near-term outlook, monetary policy needs to continue with the accommodative stance to ensure that the recovery gains greater traction and becomes broad-based.

However, Das says, "The growth momentum, however, needs to strengthen further for a sustained revival of the economy and for a quick return of the level of output to the pre-COVID trajectory."

Consistent with the accommodative stance of the monetary policy, the Reserve Bank remains committed to ensure the availability of ample liquidity in the system to foster congenial financial conditions for the recovery to gain traction, said Das. 

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