Low rates, liquidity and inflation bothered MPC ANUP ROY because long rates are what are , 18 December relevant for stimulating invest- ments and supporting an eco- he minutes of mone- nomic recovery; a steepening tary policy commit- of the yield curve by a reduc- tee (MPC) delibera- tion in short rates does not T tions showed accomplish this,” Varma said. members delved deep into Rather, the RBI should aim ultra-short-term rates, risk of Investment The demand that Persistence of for a reduction in long rates, as running huge liquidity, and demand is still to is stimulated by a negative real rates it increases demand in the even transmission of rates not gain traction cut in short rates for too long can short run and stimulates translating into investments even as the is not accomp- affect savings, supply in the medium term, he while inflation turns sticky. said. These issues were not dis- transmission of anied by an lead to mispricing “By contrast, the demand cussed in details in the policy policy rate offsetting supply and encourage that is stimulated by a reduc- statement or the post-policy actions has been boost, and carries excessive tion in short rates is not accom- conference, even when the sharper, quicker” inflationary risks leveraging panied by an offsetting supply MPC members unanimously SHAKTIKANTA JAYANTH R MRIDUL K. boost, and, therefore, carries voted to keep rate unchanged DAS VARMA SAGGAR greater inflationary risks,” at 4 per cent, and the stance at RBI Governor External member Executive director Varma said, adding a sub-3 per accommodative. cent rate, corresponding to a Reserve Bank of (RBI) negative real interest rate of 4.5 Governor was per cent, “risks encouraging unwilling for a hasty withdra- speculative inventory accumu- wal of policy accommodation, lation and stokes inflationary the minutes showed. “Overall, buildup in sectors that are the persistence of inflation at showing signs of cartelisation elevated levels constrains and resurgence of pricing monetary policy at the current power”. juncture. Though recovery is On balance, the Liquidity Elevated inflation Varma cautioned that the underway, there is still continu- need to support measures not has checked in benefits of the soft rates are ous need to nurture and sup- relaxing the only helped firms and may be here reaching to a few oligopolistic port growth to make it broad- supply-side survive but have to stay. With companies and not all. based and durable. A constraints is a also revived retailers striving Mridul K Saggar, internal premature rollback of the priority as this is demand. Bank to recover lost member and executive direc- monetary and liquidity policies also needed to credit growth incomes, it is tor, said the persistence of neg- would be detrimental to the address the figures show unlikely that ative real rates for long can nascent recovery and growth," concerns on a turnaround margins will ease “adversely affect savings, lend Das had said. inflation but in the near-term support to mispricing of finan- RBI deputy governor SHASHANK underestimate it MICHAEL PATRA cial asset prices and encourage Michael Patra said: “Elevated BHIDE RBI deputy excessive leveraging”. inflation has checked in and ASHIMA GOYAL According to Saggar, the output External member External member governor may be here to stay. With gap will close only in the sec- retailers striving to recover lost ond half of the next fiscal, incomes, it is unlikely that mar- below its level a year ago”, Das expenditure in the remaining therefore, "there is time to nor- gins will ease in the near-term. said, while he acknowledged part of the fiscal would further malise monetary policy”. Economic activity is recovering that “investment demand is boost growth. Liquidity, credit and mone- but unevenly. This warrants still to gain traction even as the Das’ take on soft rates was tary aggregates will need to be continuing policy support till transmission of policy rate somewhat countered by exter- closely monitored with an eye it is set on a firm trajectory of actions has been quicker”. nal member Jayanth R Varma, on macro-financial stability self-sustaining expansion.” The governor hoped the sti- who said that "reduction of that can be “enervated when Even as the multi-speed mulus packages would encour- rates carries significant risks short-term borrowing costs fall recovery is faster than esti- age private consumption and and little rewards”. below the operational policy mated, "overall activity is still an increase in government “The rewards are low rate”, Saggar said.