Question:

Topics for analysis and Discussion of the article: Monetary Policy, Aggregate Demand and Aggregate Supply

Article:

Surge in Covid cases biggest recovery hurdle, says RBI governor

This story originally appeared inTOIon Apr 23, 2021)

Rapid rise in Covid cases is the single biggest challenge to the ongoing recovery in the Indian economy, RBI governor Shaktikanta Das has said, asserting that previous year's learnings should, however, help in managing the crisis as it unfolds.

"The need of the hour is to effectively secure the economic recovery underway so that it becomes broad-based and durable. The renewed jump in Covid infections in several parts of the country and the associated localised and regional lockdowns add uncertainty to the growth outlook," the governor said in the minutes of the MPC (monetary policy committee) meeting, which was released by the RBI on Thursday.

"In such an environment, monetary policy should remain accommodative to support, nurture and consolidate the recovery. We need to continue to sustain the impulses of growth in the new financial year 2021-22. I vote to keep the policy rate unchanged and to continue with the accommodative stance as long as necessary to sustain growth on a durable basis, while ensuring that inflation remains within the target going forward," Das had said.

While the RBI expectedly kept rates on hold, it had surprised markets by announcing a Rs 1-lakh-crore government bond purchase programme, which helped bring down interest rates. While the RBI did reiterate its accommodative stance while announcing the MPC decision, a reading of the minutes emphasises the dovish stance.

"Going forward, The RBI would continue to ensure ample surplus systemic liquidity and the system would remain in surplus even after meeting the requirements of all financial market segments and the productive sectors of the economy," Das had said in the MPC meeting.

He had said that indicators suggest that the real GDP was evolving on the lines of the February MPC resolution.

"Improving demand conditions, investment enhancing measures by the government and improving external demand impart an upside to growth prospects. The recent jump in Covid infections and its impact on economic activity, however, needs to be watched carefully," Das had cautioned.

Deputy governor Michael Patra had also expressed concern over recovery. "Monetary policy has to remain supportive of the economy until the recovery is more sure-footed and its sustainability assured," he said. He pointed out that risks to the recovery have become accentuated since the MPC's February meeting with new waves of infections and the inexorably slow pace of vaccinations, moderation in several high-frequency sentiment indicators, global risks, and spillovers.

"The economic recovery can come under risk if this new wave of infections is not flattened soon," said Mridul Saggar, executive director, RBI, and a member of the MPC. "This is especially so as monetary and fiscal policies have already used most of their space to considerably limit the loss of economic capital, though expansion of policy toolkits can still afford additional comfort," he added.

Read more at:

https://economictimes.indiatimes.com/news/economy/policy/surge-in-covid-cases-biggest-recovery-hurdle-says-rbi-governor/articleshow/82209257.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Required:

Introduction

• - Identify key points or issues from the article.
• - Choose the topics (Monetary Policy, Aggregate Demand and Aggregate Supply) and economic models that would help you with your analysis.
• - Include a justification or rationale as to why those topics were chosen.

ii. Economic Analysis (sub-headings)

• - provide appropriate definitions of relevant theories.
• - application of these theories to the key issues identified in the chosen article.
• - diagram explanation

iii. Conclusion and Suggestion (sub-headings)

iv. Macroeconomics Theoretical Diagram/s in Appendix