The six-member monetary policy committee decided to maintain status quo on the policy repo rate to support growth, which has been laid low by the second Covid-19 wave , and to tackle inflationary pressures arising from rising global commodity prices, especially crude oil, and logistics costs.

RBI Governor Shaktikanta Das and Deputy Governors MK Jain, MD Patra, M Rajeshwar Rao, and T Rabi Sankar fielded questions from the media. Excerpts:

Why is RBI focussed only on supporting the 10-year benchmark Government Securities (G-Secs) in its market interventions?

Das: We focus on the entire yield curve, across maturities, and not just the 10-year G-Secs. Somehow there is a perception about the RBI being focussed only on 10-year G-Sec. For example, in the last G-SAP (G-Sec Acquisition Programme) auction, we had G-Secs across the maturity profile for purchase. The bond yields look inverted because there is abundant liquidity. So, naturally, the short-end (G-Secs) rates fall more than 10-year or 14-year rates. Therefore, the curve looks steep. But it is not so. If you look at the 10-year or the 14-year segments, the rates haven’t really gone up.

Whether 6 per cent yield on the 10-year G-Secs is sacrosanct, there is nothing like that. We have talked about an orderly evolution of the yield curve and we are focussed on that.

How will lower inflation print for April give you more elbow room?

Das: The inflation print for April at 4.3 per cent gives us elbow room. And elbow room means, it gives us space with regard to liquidity operations, enables us to step up liquidity infusion into the system.

With inflation being revised up, does it mean that policy normalisation will start?

Das: With regard to normalising the policy stance, there is no thinking at the moment. Our earlier CPI inflation projection was 5 per cent and now we have revised it to 5.1 per cent. This is not a significant upward revision.

What is your assessment of the impact of the second wave?

Das: Rural and urban demand was dented in the first wave. But the expectation is that the second wave has moderated (in terms of number of fresh cases)….Our assessment is that the impact of the second wave will be confined within the first quarter.…Our expectation is that from the second quarter, the overall demand position also will improve.

How long can you look through incipient inflationary pressures?

Patra: In several MPC statements, the analysis of inflation has been done. And the view of the MPC is that at this time the inflation is not persistent. It will turn persistent when it is backed by demand pull. At the current stage, we find the demand very weak and there is no demand pull in the inflation formation. It is mostly on the supply side and therefore we have chosen to look through. But we are very, very vigilant about demand pressures and we will keep on monitoring as and when demand pressures start feeding into the inflationary process.

How concerned are you about the pass through of WPI inflation into CPI?

Das: We are monitoring the the revival of growth — how growth is taking roots. We are monitoring the inflation dynamics…So, the MPC has consciously decided to focus on growth and give forward guidance in terms of the accommodative stance, spelling out what is meant by accommodative. So, the focus on growth will continue. The inflation, according to the MPC’s assessment, during the current year, is 5.1 per cent, which is well within the 2-6 per cent band.

Corporate loan book has not picked up and private capex revival has not started. What is your assessment and, based on the announcements today, is there no need for a stimulus package?

Das: We have not told banks to push credit. We discussed the credit flow in the earlier meeting…We have requested banks to implement the resolution framework. The RBI never tells banks to push credit. Credit flow depends on market demand and borrower profile and borrowing proposal. The dent on the economy is in the first quarter. From the second quarter, overall economic activity will pick up.

NPAs of banks will remain within the stress test of Financial Stability Report ?

Das: On NPAs, the projection (FSR said GNPA ratio may rise from 7.5 per cent in September 2020 to 13.5 per cent by September 2021 under the baseline scenario; the ratio may escalate to 14.8 per cent under the severe stress scenario) we gave in the last FSR will be within that. The figures are manageable. We will spell out the details in the FSR.

Do you see a risk to the general government’s debt sustainability over the medium term?

Patra: Public debt will be about 90 per cent of GDP at the end of March 2022. Our assessment is based on the Domar condition of (public debt) sustainability, which requires that the growth rate of the economy should be higher than the interest rate at which the government services the debt, that condition is fulfilled as of now. The level of debt-to-GDP is set to decline over the next six years. So public debt is sustainable.

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