Economy showing signs of getting back to normalcy but medium term outlook uncertain: RBI Guv

Team Udayavani, Jul 11, 2020, 12:46 PM IST

Mumbai: The Indian economy has started showing signs of returning to normalcy in response to the staggered easing of lockdown restrictions, RBI Governor Shaktikanta Das said on Saturday.

He further said the need of the hour is to restore confidence, preserve financial stability, revive growth and recover stronger.

“The Indian economy has started showing signs of getting back to normalcy in response to the staggered easing of restrictions,” Das said at the 7th SBI Banking and Economics Conclave.

Indian companies and industries respond better in a crisis, he noted.

Das, however, said it is still uncertain when supply chains will be restored fully, how long it will take for demand conditions to normalise, and what kind of durable effects the pandemic will leave behind on potential growth.

According to him, targeted and comprehensive reform measures already announced by the government should help in supporting growth.

Possibly in a vastly different post-COVID global environment, reallocation of factors of production within the economy and innovative ways of expanding economic activity could lead to some rebalancing and emergence of new growth drivers, Das added.

The central bank, he said, strives to maintain the balance between preserving financial stability, maintaining banking system soundness and sustaining economic activity.

“Post containment of COVID-19, a very careful trajectory has to be followed in orderly unwinding of counter-cyclical regulatory measures,” he said.

The financial sector should return to normal functioning without relying on the regulatory relaxations as the new norm, he added.

He said the Monetary Policy Committee (MPC) has reduced policy rates by 250 basis points since February 2019 to support growth.

The conventional and unconventional monetary policy and liquidity measures by RBI have been aimed at restoring market confidence, alleviating liquidity stress, easing financial conditions, unfreezing credit markets and augmenting the flow of financial resources to those in need for productive purposes, he said.

“The broader objective was to mitigate risks to the growth outlook while preserving financial stability,” he added.

Das said despite the substantial impact of the COVID-19 pandemic, the country”s financial system, including all the payment systems and financial markets, are functioning without any hindrance.

“RBI is making continuous assessment of the changing trajectory of financial stability risks and upgrading its own supervisory framework to ensure that financial stability is preserved,” he said.

Banks and financial intermediaries have to be ever vigilant and substantially upgrade their capabilities with respect to governance, assurance functions and risk culture, Das noted.

The Governor also said banks will have to improve their governance, sharpen their risk management and raise capital in an anticipatory basis instead of waiting for a situation to arise.

He said as the lockdown has obstructed RBI”s on-site supervision to an extent, the central bank is further enhancing its off-site surveillance mechanism.

The objective of the off-site surveillance system would be to ”smell the distress”, if any, and be able to initiate pre-emptive actions, he added.