Mumbai: The Reserve Bank of India has not yet taken a view on monetising the budget deficit, which is set to surge due to government's ongoing fight against the COVID-19 pandemic, Governor Shaktikanta Das has said.
He was speaking to Cogencis in his first interview since PM Modi announced a nationwide lockdown. Several economists and even former top officials of the RBI have suggested the government should overshoot its fiscal deficit target because of the pandemic and the lockdown.
And many have suggested the RBI should monetise the rising fiscal deficit. "There is an animated public discourse around this subject," Das told Cogencis in the hour-long exclusive interview. On the steps to combat the impact of the pandemic, Das pointed out that it was as important to make plans for exiting the extraordinary measures that are undertaken in response to a situation.
"The mantra of coming out of the 'chakravyuh' has to also be thought through very carefully and factored in while entering the 'chakravyuh'. He was referring to the hard-to-exit battle formation from the epic Mahabharata.
"So, both (entry and exit) have to be done simultaneously. Whether it relates to fiscal deficit or liquidity or any other extraordinary measure, it has to be applied in time, and the exit also has to be made in time." On the current situation, the central bank hasn't taken a view yet, the governor said.
"We will deal with it keeping in view the operational realities, the need to preserve the strength of the RBI's balance sheet, and most importantly, the goal of macroeconomic stability, is our primary mandate." The RBI will also evaluate alternative sources of funding the fiscal deficit, Das said.
Asked if the RBI was ruling out private placements of government securities, Das said with a laugh, "I will not give a specific reply to your specific question." "My generalised response to all such questions is that all instruments, both conventional and unconventional, are on the table. I have said this before. The RBI will take a judicious and balanced judgement call, depending on how the evolving situation plays out."
REPO RATE: The governor warned the financial market that it should not lull itself into believing that reverse repo rate, which has been cumulatively cut by 115 basis points in a span of around three weeks by the RBI, is the new signalling rate. The lowering of reverse repo rate should be seen as a transient arrangement necessitated by the imperatives of liquidity management, he said.
The governor also sought to allay fears that the central bank would resort to withdrawing the accommodation quickly. "To ensure the markets don't read me differently and think that RBI is going on a tightening mode, let me make it very clear: the exit has to be well-timed, when you are confident that things are working and near normal."
"It should not be premature. At the same time, it should not be delayed beyond a point, in the interest of all." "We live in extraordinary times and our policy responses have to be out of the ordinary," Das said. "This is a time of trial, an endurance test. We must remain resilient and believe in our capacity to come back stronger.
