Monetary policy and fiscal stimulus

07 FEB,2021 | MEDC


 

The recently presented Budget has rightly projected fiscal policy as a dominant force in rejuvenating our Covid-battered economy. However, monetary policy will also have a smaller (but equally important) role to play in this regard. The power of interest-rate and credit management in normalizing the economy should not be underestimated. Making credit strategically available to the MSME and agricultural sector will form a cornerstone of economic recovery. The continuance of regulatory forbearance policies has unintended and detrimental consequences for the banking and financial sector, and once they are rolled back, monetary policy will need to kick in to stabilize the system. Although there is still some time left for initiating the normalization process, markets will remain keenly tuned in to what RBI has to say. In the current situation at least, both fiscal and monetary policy need to work together to facilitate a sustainable macroeconomic stabilization. The RBI needs to be taken into confidence in all the economy-boosting measures undertaken by the Finance Ministry. 

*Photo Credit: Google

 

 

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