The Editorial Analysis: Omicron Shadow

Table of Contents

Omicron Shadow- Relevance for UPSC Exam

GS Paper 2: Indian Economy– Issues relating to planning, mobilization of resources, growth, development and employment.

Recently, the Reserve Bank of India (RBI) in its latest bi-monthly monetary policy action, maintained the status quo on benchmark interest rates.
The RBI’s policy stance, as well as the full-year GDP growth and inflation projections, stems largely from a wariness of the risks posed by the Omicron variant of the novel coronavirus.

The RBI governor said that ‘headwinds from global developments’ were the main risk to the domestic outlook, which was now “somewhat clouded by the Omicron variant of COVID-19”.
Private investment and private consumption- the key drivers of economic growth still lack meaningful momentum.
High Inflation: RBI’s continued stance on growth rather than stability may flame upside risks to long-term inflation and to inflation expectations.
- The RBI’s November round of ‘Inflation Expectations Survey of Households’ shows that households expect inflation to accelerate in the near and medium-term.

The Monetary Policy Committee (MPC) opted to continue with its growth-supportive ‘accommodative’ policy stance so as to enable a durable and broad-based recovery.
Reason: Prices of non-durable consumer goods, especially vegetables and other food grains, will decline with winter arrival, taming the inflation in the near term.
- RBI also asserted that the ‘slack in the economy may limit the pass-through of cost-push pressures that have kept core retail inflation persistently high for 17 months.

Balancing stability and growth: RBI’s Monetary Policy Committee should balance these two as price stability remains the cardinal principle for monetary policy as it fosters growth and stability.
Though the RBI has begun to slowly tighten the liquidity spigot it opened in the wake of the pandemic last year, a more robust response to ward off price pressures must be taken.