October 22, 2021

The World Stock Markets Tips & Targets, News, Views & Updates

The World Stock Markets Tips & Targets, News, Views & Updates

Don’t see RBI withdrawing ultra-loose policy in FY22: Former DG Gandhi

Former Deputy Governor R Gandhi on Friday said the Reserve Bank is unlikely to roll back its ultra-loose at least in FY22, as the economy is still below the pre-pandemic levels.

Gandhi also pointed to DG Michael Patra’s recent statement, where he made it clear that the central bank will prefer to have a clearly communicated glide path rather than taking any strong actions.

With the GDP growth rate going higher albeit, at a lower base and inflation being very high, there was speculation about when would the withdraw the accommodative measures adopted in the face of the pandemic, which resulted in high liquidity.

Watchers also point to the delay in the withdrawal of similar measures in the aftermath of the 2008 global financial crisis, which created problems, including high inflation.

In my assessment, the normalisation of ultra-loose in India is several quarters away. Definitely not this fiscal, Gandhi said at an online event.

The MPC (committee) is very firm that sufficient indications will be available to the market on whether they are going to change their accommodative stance, or tightening when it is going to happen, the pre-warning will certainly be available, he added.

Gandhi said the economy is yet to reach the pre-pandemic levels, which is the first milestone to be crossed before starting to tighten.

A good indicator of a pick-up in the economic growth will be the bank credit growth, he said, adding that so far this fiscal, the system is in the negative territory on this.

The high inflation is softening as seen in the last print of 5.3 per cent for headline inflation, Gandhi said, adding that the price rise is being looked at as a transient factor because of the supply-side issues.

With the high liquidity and the consequent negative returns on the real interest rates, Gandhi said the investors and savers will have to accept the new reality and realign their bets accordingly.

“When we have a low inflation target and when we achieve that, the income from the fixed deposits investments will be very less and savers will have to opt for taking higher risks,” he said, adding the same is evident in the shift in savings to mutual funds, equity and other asset classes.

The millennial segment is even more risk-taking and is investing in startups and cryptocurrencies, he said.

Gandhi said the non-bank lenders have got over the reverses of the IL&FS episode and it is advantage NBFCs over banks right now.

The banking system is ceding share of the overall credit flow in the market at present, as others like non-bank lenders, corporate debt markets etc get more active, he said, adding that this does not mean that it is suffering on the growth front.

With digital platforms getting into accepting deposits, Gandhi said it is essential for ensuring that the funds collected on behalf of banks go to an escrow account and are not kept with the platforms, warning that China had suffered on this count some years ago.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Share This :