India’s central bank said on Monday that policy support is needed for longer for a sustained recovery in Asia’s third largest economy from a coronavirus induced slowdown, even as demand has picked up.
Earlier this month, The Reserve Bank of India’s (RBI) monetary policy committee kept interest rates steady at record lows and reiterated the need to unwind pandemic-era stimulus only gradually to aid the nascent economic recovery.
“Premature tightening could bring about the stagflation that all fear, quashing growth just as the economy is recovering,” the RBI said in its monthly bulletin.
Perhaps the need of the hour is not to focus “so single-mindedly” on normalisation but on supply side reforms to ease the bottlenecks, labour shortages and high commodity prices, especially crude oil, the central bank added.
India’s economy rebounded in the April through June quarter even as a devastating second wave of COVID-19 swept the country, with growth of over 20% compared to a year earlier, driven by a surge in manufacturing and higher consumer spending.
The central bank said global semiconductor shortages, elevated commodity prices and input costs, and potential global financial market volatility are downside risks to domestic growth prospects.
The resurgence of edible oils prices in the recent period, is a also a cause of concern, it said.
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