Arresting risks to the growth outlook and preserving financial stability should receive highest priority, Reserve Bank of India Governor Shaktikanta Das said in the last monetary policy committee meeting held between March 24 – 26.

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“The erosion of consumer confidence and investment sentiment can operate in an adverse feedback loop to worsen the growth outlook even further. In this emerging scenario, monetary policy needs to proactively arrest any deterioration in aggregate demand, and thereby create enabling conditions for businesses to normalize production and supply chains as and when the situation becomes conducive for resumption of economic activity,” the Governor noted according to the minutes of the MPC meeting released on Monday.

RBI will continue to remain vigilant and will not hesitate to use any instrument – conventional and unconventional – to mitigate the impact of COVID-19, revive growth and preserve financial stability, Das said.

The MPC had voted by 4:2 majority to reduce policy repo rate by 75 bps to 4.4 percent, and reverse repo rate by 90 bps.

The path to normalisation of activity, however, is contingent on how India’s COVID-19 epidemiological curve evolves, amidst heightened uncertainty. Growth impulses face strong headwinds from sluggish aggregate demand, disruptions in supply of labour and key inputs, including imports, Das noted.

“We are living through an extraordinary time and the situation currently facing the country is unprecedented. It, therefore, becomes imperative to make all-out efforts to protect the domestic economy from the adverse impact of the pandemic,” he said.

The space for policy action has opened up in view of the disinflationary effects of deceleration in demand under the impact of COVID-19, he added.

Commenting on the minutes, Indranil Pan, Chief Economist of IDFC First Banks said that financial stability had been the topmost priority.

“There is a downside risk to growth but it is more in my opinion. The fiscal policy that can reverse the growth because there is a huge demand implication rather than supply side factors which interest rates alone cannot address. What we have seen till now is, in my opinion, not a stimulus, it is more a stabilization mechanism to address the cashflow issues at the lowest end of the pyramid. The stimulus will come only after the lockdown has ended and the production cycle is more or less in order,” Pan said.

First Published:Apr 13, 2020 11:27 AM IST