Takes Years to Recover – Monetary Policy Committee.
The Story: The lastest released Minutes of monetary policy committee has indicated that the damaged caused by corona to the economy is so bad that it takes years for the economy to recover. This is the first time that government officials have officially acknowledged the economic situation.
Now to the actual details, the monetary policy committee of India is the highest body presently composed of 6 members and is responsible for fixing the interest rates in the country. The committee decides the interest rates such as Repo rate, Reverse Repo Rate and also analyses the economic situation of the country.
The committee meets at least 4 times in every financial year and discussed the economic situation and accordingly fixes the interest rates to ensure proper growth in the economy. The main objective remains to maintain stability in the economy and accelerate the growth of the economy.
What is Monetary Policy
Monetary policy refers to the policy of the Reserve Bank of India with regard to the use of monetary instruments under its control to achieve the goals of GDP growth and lower inflation rate. The RBI is authorized to make monetary policy under the Reserve Bank of India Act, 1934.
Latest Meeting of MPC
The last meeting of MPC was held between May 20-22nd 2020. And these meetings have a significant role to play as the committee to analyze the present situation of the economy due to covid19 and the effect of lockdown on the economy.
Later this Friday, on June 5th, the Minutes of the meeting are released to the public and these reveal some challenging things. the situation of the economy is very much affected by the covid19 and the lockdown across the country.
The policy rate, or repo rate, was reduced by 0.40 percentage points, taking the cumulative reduction in the policy rate between February 2019 and May 2020 to 2.5 percentage points. This step was needed in the present situation to ensure stability in the economy and provide growth to the damaged economy.
An interesting point in the meeting is that everyone has agreed that the economy is in a bad situation. For the last 2 decades, an average of 7% GDP growth was observed for India. But this average will not be applicable for at least the next few years as it takes years for the economy to recover from the present situation. But the minutes have not indicated any indication of the scale of deterioration of the economy.
Something that is to be highlighted is that the minutes have been clearly documented with the terms such as “huge negative growth”, “Destruction of Economic activity”, and others. The words itself indicate the feel of the panel members about the economy.
RBI Governor Shaktikanta Das has said that the Potential output from the Indian economy is low, and the outlook is very uncertain. The future certainly depended on the covid19 curve and it is not clear when the curve of covid19 will flatten.
It is also indicated about the damaged Indian investments. There is going to be a reduction in the output for a few years and the private and government revenues both are going to take a big blow.
What is the challenge ahead for India
The economic stimulus package that is given by the government will be a good step in reviving the economy. The effectiveness of the schemes in the economic package will determine the future of the economy of India.
ANd also the present situation undoubtedly depends on the controlling measures of Covid19 which is actually the main reason for the present situation. Presently India is opened after months of lockdown, but still, the number of cases is not reducing. Hence it is very important that the government has to play a key role here.
We have seen in the past week that, there is a positive sentiment from everyone on the economy of India due to the announcement of Unlock 1.0. Even the stock markets and Indices both Nifty and Sensex have started to move up. Foreign Institutional investment has increased in the past few days. This all cumulatively indicate that there is a positive sentiment in the economy. But any bad move or any further increase in the economy will only damage the investor sentiment and the economy might move to an even worse situation.
Hence it is important that the government should act carefully in balancing both the covid19 and the economic situation. Only the future will tell how India faces the situation. but undoubtedly the challenge in front of India id gigantic and need to be faced.
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