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RBI avoided early tightening to avoid complete downward turn of economy: Das

03 Nov 2022 Evaluate

Amid flak faced by the RBI for missing inflation target, Governor Shaktikanta Das has defended its policies saying the economy would have taken a ''complete downward turn'' if it had started to tighten rates earlier. He said the Indian economy is being looked at as a story of resilience and optimism by the world and the inflation is now expected to moderate.

Acknowledging that the central bank has missed its primary target as inflation has consistently overshot, Das said there is a need for appreciating the counterfactual aspect as well, and think about the impact of premature tightening which would have hurt recovery. He said ‘It (tightening earlier) would have been very costly for the economy. It would have been very costly for the citizens of this country. We would have paid a high cost.’

RBI Governor said during the pandemic, the RBI utilised flexibility in the monetary policy framework to tolerate a slightly higher inflation which was within the target range of 2-6 per cent, to ensure that overall economy remained resilient and financial stability was maintained. He said the economy bounced back in FY22 and FY23 after contracting in the pandemic-affected FY21, and is also expected to sustain in FY24. It can be noted that some critics have questioned the delay in rate tightening, which began in May this year with an off-cycle meeting of the rate-setting panel, saying RBI should have acted earlier in the face of high inflation.

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