The decision of the Monetary Policy Committee (MPC) to keep RBI’s key policy rates unchanged and stance accommodative, despite a rise — transient, it is hoped — in inflation is pragmatic and forward-looking, following a pandemic-induced growth contraction. The MPC has rightly surmised that the inflationary pressures emanate from high global commodity prices and logistics costs, and that softening crude oil prices should reduce cost-push inflation.
It is also welcome that the monetary policy statement has a series of measures to shore up liquidity in the banking system, arrest rising bond yields and also boost credit offtake across the board, but also for specific sectors such as warehousing of agricultural produce, to purposefully tackle the supply-constrained inflationary spiral. The MPC’s accommodative policy stance amounts to flexible inflation targeting so as to policy-induce growth, which makes perfect sense. RBI’s move to step up open-market purchases of government securities would shore up liquidity and hasten the ongoing recovery. The g-sec acquisition programme, or G-SAP 1.0, for ₹1 lakh crore can well be augmented. A similar programme for corporate bonds is surely warranted, for an active and thriving corporate bond market. Next, the extension of RBI’s targeted long-term repo operations (TLTRO), designed to raise credit flow to stressed corporates, is also business-like and efficient.
The specific measure to provide additional liquidity support for all-India financial institutions such as Nabard, Sidbi and NHB would better allocate resources for modernisation of agriculture, small enterprises and housing. And, a new committee on the role and function of asset reconstruction companies is timely, indeed.