Russia’s invasion of Ukraine worsens RBI’s policy option: Shaktikanta Das : Rashtra News
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“Recent geo-political developments have further aggravated the challenges and dilemmas for the central banks. Amidst these uncertainties, central banks have to find the optimal grounds with attendant communication challenges” Das said at a conference speaking on “Monetary Policy and Central Bank Communication ” at the National Defence College, New Delhi.
The current global conditions, after about two years of living through the pandemic, are now posing complex challenges for central bank communication. The RBI is faced with a challenge of maintaining a delicate balance between reviving growth following the pandemic induced slowdown in the economy and manage inflation and inflationary expectations triggered by rising crude and commodity prices which could further accentuate as due to the fall-out of Russia’s invasion of Ukraine.
“Central banks are in a bind – if they act aggressively to contain inflation which may perhaps subside as normalcy returns, they run the risk of setting in recession; on the other hand, if they act too little and too late, they may be blamed for “falling behind the curve” and may have to do a lot of catching up later which will be detrimental to growth” Das said.
Even as the consumer price inflation has remained above the upper end of the target band of 2- 4 per cent for more than a year, the central bank has left the policy rate unchanged at 4 per cent for more than a year now, with it choosing to maintain an accommodative stance until it sees signs of a durable recovery and growth.
Highlighting the significance of the central bank’s communication policy in the current economic environment, Das said ” Recent geo-political developments have further aggravated the challenges and dilemmas for the central banks. Amidst these uncertainties, central banks have to find the optimal grounds with attendant communication challenges”.
Unwinding of open-ended policies, as and when they happen, would require careful, nuanced and measured communication as in such instances, the expectations of certain segments of the market may not be in sync with that of the central bank’s assessment according to Das.
The market has on and off highlighted concerns about the RBI being behind the curve in terms of its policy response to various market and global developments. But Das explained that RBI’s policy response to the pandemic has been different from other global central banks. ” First, we have undertaken unconventional measures even before exhausting the conventional policy space; i.e., even before reaching the zero lower bound of interest rates. Second, the counterparties involved in our operations were only banks and All India Financial Institutions (AIFIs) as liquidity provided to targeted sectors were channelised through them ”
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( News Source :Except for the headline, this story has not been edited by Rashtra News staff and is published from a economictimes.indiatimes.com feed.)
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