Monetary policy will continue to have role in supporting fiscal stimulus

The MPC will keep the policy repo rate on hold, unanimously, despite the prospect of a drop in CPI inflation to 5 per cent in Q4 and then likely to average 4.5 per cent in FY22

Topics
monetary policy | Fiscal stimulus | Union Budget

Saugata Bhattacharya 

The FY22 Budget has definitively shifted the fulcrum of recovery away from the earlier dominant monetary stimulus, manifest in the ostensible Survive, Revive and Thrive strategy, to fiscal policy. Yet monetary policy will play not just a supporting, but an equal, flanking role in reinforcing the government’s expenditure boost inter alia by anchoring interest rates.

This will need to be accompanied by managing a gradual, calibrated normalisation of the accommodative stance in order to reduce potential financial stability risks. The MPC will keep the policy repo rate on hold, ...

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First Published: Thu, February 04 2021. 06:10 IST
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