Shaktikanta Das, RBI Governor, Das hinted at an imminent correction in the buoyant stock markets, in an interview to a television channel, once again reiterating the growing disconnect between financial markets and the real sector. “There is so much liquidity in the system, in the global economy, that’s why the stock market is very buoyant and it is definitely disconnected with the real economy,” Das said. “There will definitely be a correction but we can’t say when.”
The Reserve Bank of India (RBI) believes that there is room for further rate cut but it is unlikely to implement it any time soon due to rising inflation, minutes of the central bank’s last monetary policy committee (MPC) meeting suggested. According to the minutes released on Thursday, RBI Governor Shaktikanta Das said, “Although there is headroom for further monetary policy action, at this juncture it is important to keep our arsenal dry and use it judiciously,” hinting a pause in the rate cuts.
After a three-day brainstorming earlier this month, all the six members of the MPC, headed by Mr Das had opted for a status quo and left interest rates unchanged. “Bank moratorium was a temporary solution to respond to coronavirus lockdown but resolution framework is a permanent solution,” he said. “RBI formed the COVID-19-related resolution framework after taking into consideration financial health of banks as well as depositors. Businesses are in a lot of stress due to COVID-19 and if they fail, it will lead to financial instability. However, if businesses are saved, they will repay loans and, subsequently, save jobs.”
“Inflation surprises of recent months are undermining the MPC’s actions and stymieing its resolve to do what it takes to revive growth and mitigate the impact of COVID-19 on the economy,” deputy governor Michael Patra wrote in the minutes.The regulator had recently announced one-time restructuring for loans which are stressed due to the impact of the pandemic.