India's central bank said on Monday that policy support is needed for longer to drive a sustained recovery in Asia's third largest economy from a coronavirus induced slowdown, even though demand has picked up.
Earlier this month the RBI monetary policy committee kept interest rates steady at record lows and reiterated the need to unwind pandemic stimulus only gradually to aid the nascent in India.
Premature tightening could bring the stagflation that all fear, quashing growth just as the economy is recovering, said the said in its monthly bulletin.
Perhaps the need of the hour is not to focus so single-mindedly on normalisation, but on supply side reforms to ease bottlenecks, labour shortages and high commodity prices, especially crude oil, added the central bank.
India's economy was sustained in the April to June quarter, even as a devastating second wave of COVID-19 swept the country, with growth of over 20% compared to a year earlier, driven by a surge in manufacturing and higher consumer spending.
The central bank said global semiconductor shortages, probable commodity prices and input costs, and increased global financial market volatility are downside risks to domestic growth prospects.
The recent rise of edible oil prices is a also cause of concern, it stated.