Reserve Bank of India (RBI) has said that though demand has picked up after easing of lockdowns and dip in Coronavirus infections, policy support will still be required on a long term basis for sustained economic recovery.
The central bank in its monthly bulletin for October 2021 said that premature tightening is likely to bring stagflation, which may stunt growth at a time when the economy is recovering from the shocks of the pandemic.
RBI had earlier this month had kept key interest rates unchanged and had emphasised on the need to release Coronavirus-related stimulus gradually which would help in economic growth.
Perhaps the need of the hour is not to focus "so single-mindedly" on normalisation but on supply side reforms to ease the bottlenecks, labour shortages and high commodity prices, especially crude oil, it noted.
Indian economy had shown growth in the April-June quarter of the current financial year despite the fact that the deadly second wave of the pandemic had ravaged the country at that time. The growth was mainly due to improvement in manufacturing activities and greater consumer spendings.
RBI said that semiconductor shortage being faced across the globe, higher commodity prices and rising input costs are downside risks to domestic growth prospects. The rise in edible oil prices is also a matter of concern, it noted.