“There is so much liquidity in the system, in the global economy, that’s why the stock market is very buoyant, and it is definitely disconnected with the real economy,” Das said. “There will definitely be a correction, but we can’t say when.”
Das also stated that the RBI could go for a prolonged pause in rate cuts despite a scope for further monetary policy action. “It is important to keep our arsenal dry and use it judiciously,” the governor said.
In the recently released minutes of the monetary policy committee meeting, Das had argued that it would be prudent to wait to see the impact of rate cuts seep through.
“I also feel that we should wait for some more time for the cumulative 250 basis points reduction in policy rate since February 2019 to seep into the financial system and further reduce interest rates and spreads,” Das had said.
Commenting on the six-month loan moratorium that is set to end on August 31, Das said that it was a temporary solution to tackle stress emanating from aftereffects of the pandemic. “Bank moratorium was a temporary solution to respond to the coronavirus lockdown, but resolution framework is a permanent solution,” he said.
“RBI formed the Covid-19-related resolution framework after taking into consideration financial health of the banks as well as depositors. Businesses are in a lot of stress due to Covid-19 and if they fail, it will lead to financial instability. However, if businesses are saved, they will repay loans and, subsequently, save jobs.”
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August 22, 2020 at 11:10AM
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Buoyant stock markets will definitely correct: RBI governor - Economic Times
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