Das said that long-term growth requires low inflation and highlighted that inflation-control measures often impact economic growth in the short term. He cited examples from the COVID-19 pandemic to show how coordinated monetary and fiscal policies yielded better economic results.
“During the pandemic, central banks worked in close coordination with govts to deal with the unprecedented crisis. Later, when central banks were battling against multi-decade high inflation, govts took measures on the supply side to ease inflationary pressures. Consequently, the output sacrifice needed to bring down inflation was minimised,” said Das during the First Himalaya Shumsher Memorial Lecture at Nepal Rastra Bank in Kathmandu on Tuesday.
To mitigate the impact of the lockdown, the RBI infused liquidity amounting to over Rs 5.5 lakh crore, which helped reduce business stress. Later, when increased inflation forced the RBI to raise interest rates in 2022, the government took several measures to reduce commodity prices experiencing spikes.
Das noted that the approach to central banking has evolved over the past decade. Central banks now aim for sustained growth and financial stability, not just price stability. “The trade-off between price stability and growth emerges when the pursuit of price stability entails large growth sacrifice,” he added.
(with ToI inputs)