At a webinar organised by FEDAI, Das said RBI’s recent policy discourse has been dominated by the impact of the pandemic. The ongoing reforms are ushering in a simplified principle-based regulatory framework, he said adding that capital account convertibility will continue to be approached as a process, rather than as an event.
Das said that 2020 has been a year like never before, faced with an unknown crisis, which brought the global economy to a sudden stop. He said the approach so far has been to contain the impact of Covid-19 on the economy.
“The macroeconomic outlook and the financial market conditions have improved after witnessing a contraction in GDP by 23.9 per cent in the first quarter of the current financial year. We have seen a normalisation of activity in the second quarter. The Indian economy has exhibited stronger-than-expected pick up in momentum of recovery. The global economy too has witnessed a stronger-than-expected rebound in activity in the third quarter,” Das said.
He pointed out that the IMF has accordingly revised its global forecast for 2022, which is a less severe contraction than what was originally assessed in June 2020.
Das said that even as the growth outlook has improved, downside risks to the growth continue due to the recent surge in infections in parts of Europe, other advanced economies and also in parts of India.
“We need to be watchful about the sustainability of demand after the festivals. The monetary policy guidance in October emphasised the need to see through temporary inflation pressures.
Das noted that financial market conditions were benign at the start of the year, but witnessed serious stress due to Covid-19 pandemic.
“Increased volatility of financial prices was observed across most asset classes. Yields hardened in the government securities market and the yield curve steepened sharply amidst concerns about fiscal slippage and sustained sell-off by FPIs. The financing conditions in the commercial paper and corporate bond market also deteriorated, reflecting overall market conditions as well as generalised risk aversion,” the RBI Governor said.
“The Reserve Bank acted proactively and nimble-footed to ease financial market conditions and mitigate risks with a slew of conventional and unconventional measures. The RBI remains committed to fostering orderly functioning of financial markets as well as and we’ll continue to evaluate incoming information and will act as needed to mitigate any downside risks,” Das said.
Over the last three decades, Das said, the pace of financial market reforms has gathered momentum, occasionally interrupted by financial crises.
“The markets have also traversed a long distance over the years. The bond markets in the country have become broad-based in terms of participation, availability of a variety of instruments and development of repo and derivative markets. The sovereign yield curve now spans up to 40 years and provides a stable pricing backbone for the development of the corporate bond market in India. The foreign exchange market has also come a long way with increasing diversity in instruments and participants and our growing integration of the economy with the global economy,” Das said.
The recent reform measures, many of which are in the works, have been fashioned around the four major themes of liberalising financial markets and simplifying market regulation; internationalising financial markets;
safeguarding the “buy side” – user protection; and ensuring resilience and safety, Das said.