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RBI- Market’s Rally

Published: August 24, 2020
Author: G.Thulessiraman

A caution note was handed out by the RBI Governor on Friday. As it was earlier mentioned, there has been a disconnect between the economy rally and the stock market, the RBI Governor cautioned the people that the markets will be expecting a correction although the timing of this correction is very difficult to be predicted. It is believed that the abundant liquidity in the market is fueling the price rally.

In an interview to the news channel CNBC Awaaz, Shaktikanta Das said that, “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. It will certainly witness correction in the future. But when the correction will take place, it is hard to predict”. He also added, “We are regularly monitoring all market behavior. RBI is vigilant about the impact of correction on the financial sector and how to deal with it”.

The statements given out has indicated that the RBI is closely monitoring the financial markets which includes monitoring the market behavior and its impact on the financial sector stability. He also said that the necessary steps will be taken by the RBI as and when required. Das indicated that there will be rate cuts. There has been a recent release of the monetary policy committee minutes in which Das argued that it would be prudent to wait and see the impact of rate cuts seep through.

The RBI had set a mandated target range for inflation which was between 2-6%, but in June the retail inflation recorded was around 6.09%, higher than the target set. Hence, the committee has to offer an explanation to the government for such a breach. “The economy will improve in the second half but the annual growth number will remain in negative territory,” Das said, without giving a specific forecast because of the uncertain environment.



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