The Reserve Bank of India (RBI) has not overlooked inflationary trends while deciding to maintain status quo on policy rates (interest rate at which the central bank lends money to banks) during its recent Monetary Policy Committee (MPC) meeting, Finance and corporate affairs minister Nirmala Sitharaman told Fortune India in an exclusive interaction.

The RBI, says Sitharaman, has taken it in its stride since inflation is less of a worry in the bigger macroeconomic picture emerging in India as well as outside. In India, there are short-term price spikes due to supply constraints in seasonal commodities, particularly edible commodities. Hence the RBI has only taken a realistic position that these spikes and dips are necessarily reflective of seasonal changes, the finance minister explains.

According to minutes of the MPC’s meeting, published on October 22, the central bank kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4% and the reverse repo rate under the LAF at 3.35% in order to revive and sustain growth on a durable basis, and mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target.

“These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth”, the MPC said.

On excess liquidity in the system, Sitharaman says the RBI governor has already made it clear that hurried withdrawals will hurt the economy. “Both the government and the RBI as I have understood (the governor’s position) will not hurriedly do this withdrawal. We will have to do it steadily and be sure that growth is not affected at all. At this time caution is the word.”

Since banks are flush with cash, they have liquidity for business, she says. “We want to cover (the credit needs of) every little pocket and section, whether for current and immediate business expansion-related reasons or for festive season buying, as that’s the typical Indian way of demand growth,” says Sitharaman, adding that was the reason the government came up with the scheme (after Covid 2.0) for disbursement of unsecured loans of up to ₹1.5 lakh through non-banking financial companies (NBFCs). “I am glad to see that the entire amount has already been exhausted, which means it has reached the end credit-demanding business or individual. Similarly, from October 15, I did ask banks to go on a credit outreach programme so that they will flow the cash and credit is available to whoever demands it during this time,” she says, adding, banks will find a route to deploy liquidity.

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