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Revival is precariously balanced: RBI chief

The process of economic revival is now very delicately poised, according to the Reserve Bank of India (RBI) Governor Shaktikanta Das.

This observation comes in the backdrop of the manufacturing purchasing managers index (PMI) coming back to the expansion zone but the services PMI still being in the contraction zone and reports of the possibility of a third Covid wave peaking in October.

In an interaction, Das said the process of revival is still delicately poised due to possibilities such as the third wave of Covid, a surge in infections the world over, new mutants, and more uncertainties globally.

"So, at this critical time, anything that we do has to be very carefully calibrated and it has to be well-timed... So, we need to wait for the growth signals to become more sustainable. We need to see that the growth signals, the economic revival, the fast-moving indicators are not just fast moving, but they take some roots. So, the process of revival becomes more sustainable," he said.

Inflation to moderate

Regarding retail inflation, the Governor noted that the Reserve Bank expects the spike to moderate in the coming quarters. He underscored that it has now moderated to about 5.6 per cent, which is very much on expected lines."Currently, inflation is largely driven by supply-side factors. So, therefore, it is necessary to give the supply-side factors a chance and some time to correct themselves and it is happening," Das said.

Low interest rate

On depositors getting a raw deal in the prevailing low-interest rate regime for borrowers, the Governor emphasised it is a trade-off. "On the one hand, the legitimate desire of depositors to get higher interest rates, on the other hand, the legitimate requirement of business and industry to get loans at a more reasonable rate to carry on with business activity," explained Das.

He emphasised that during the pandemic, the balance naturally tilted somewhat in favour of economic activity because it has to go on as otherwise, thou sands of people will face a situation of zero income. This aspect had to be given importance and that is what the RBI has done over the last one-and-a-half years. "It's a trade-off and the trade-off will depend on the prevailing situation." Das felt that the small-savings schemes, which offer higher interest rates, should be seen as a kind of financial support being provided by the government to the depositors. The prevailing small-savings rates are much higher than the Shyamala Gopinath committee recommendation.

On bad loans getting masked by restructuring, Das said: "It's not getting camouflaged... For restructuring, we had given a time limit till June 30. All the cases, which had to be restructured have been restructured.”

"We have the exact numbers with us and the situation with regard to NPAs is definitely well under control," the Governor said.


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