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Recovery In Economic Activity In Q3 And Momentum In Q4: MPC View

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The Monetary Policy Committee of the Reserve Bank of India believes that recovery in economic activity would take place in Q3 and an acceleration in Q4.

"For the year as a whole, there is still heightened uncertainty about the duration of the pandemic and how long social distancing measures are likely to remain in place and consequently, downside risks to domestic growth remain significant. On the other hand, upside impulses could be unleashed if the pandemic is contained, and social distancing measures are phased out faster," Minutes of the MPC meeting showed.

Recovery In Economic Activity In Q3 And Momentum In Q4: MPC View
 

The MPC was also of the view that the macroeconomic impact of the pandemic was turning out to be more severe than initially anticipated, and various sectors of the economy were experiencing acute stress

"The impact of the shock has been compounded by the interaction of supply disruptions and demand compression. Beyond the destruction of economic and financial activity, livelihood and health are severely affected. Even as various measures initiated by the Government and the Reserve Bank work to mitigate the adverse impact of the pandemic on the economy, it is necessary to ease financial conditions further. This will facilitate the flow of funds at affordable rates and revive animal spirits. With the inflation outlook remaining benign as lockdown-related supply disruptions are mended, the policy space to address growth concerns needs to be used now rather than later to support the economy, even while maintaining headroom to back up the revival of activity when it takes hold," the Minutes of the Meeting showed.

It also revealed that all members voted for a reduction in the policy repo rate and maintaining the accommodative stance as long as it is necessary to revive growth and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target.

Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Janak Raj, Dr. Michael Debabrata Patra and Shri Shaktikanta Das voted for a reduction in the policy repo rate by 40 bps, while Dr. Chetan Ghate voted for a reduction by 25 bps.

Read more about: economic monetary policy
Story first published: Saturday, June 6, 2020, 8:40 [IST]
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