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Next policy may be last before MPC compelled to start some normalisation: Rajni Thakur, RBL Bank

Next policy may be last before MPC compelled to start some normalisation: Rajni Thakur, RBL Bank

Globally there is an increased tendency towards central banks tightening interest rates including in some emerging markets. With the Fed talking about a taper, what should the RBI do in its upcoming policy statement? How should we navigate the journey from ultra-loose policy to tightening?
What should RBI do and what RBI will need to do are two different outcomes at this point of time. This is a tricky time to be central banks in a country like India at this point.

Let me step back a bit. COVID was a big hit and you know as an economy India has not yet reached a pre-Covid level. The last quarter output was still below our 2018-2019 numbers. All policy bodies including the central bank should continue to focus on growth first.

What has happened in the meanwhile is that some of the global economies -- US in particular -- have caught up on their pre-Covid levels and for them it is time to start normalisation and withdraw some of the emergency support measures they introduced in the Covid times.

So as the Fed starts to taper, financial conditions will start tightening across the globe and this is key for RBI’s judgement. The point at which the easy monetary conditions will lead to financial risk is still some time away in the domestic economy. Nevertheless a taper situation like 2013 could hamper domestic financial conditions. This is a very difficult situation to be in. My sense is that RBI will have a continued bias to supporting growth and it is doing what it needs to do.

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