The country's monetary policy is, by design, financially inclusive and this strategy will result in policy effectiveness and welfare maximisation going ahead, Reserve Bank of India's Deputy Governor Michael D Patra said on Friday.
Financial inclusion appears to have gone up, with the level of the RBI's financial inclusion index rising from 49.9 in March 2019 to 53.1 in March 2020 and further to 53.9 in March 2021, Patra said at an event organized at Indian Institute of Management (IIM), Ahmedabad.
“The evidence is still forming and strong conclusions from its analysis may be premature, but India's monetary policy is, by design, financially inclusive and it will reap the benefits of this strategy in the future...,” he stated.
An economy with all consumers financially included would expect to experience less output volatility due to lower consumption volatility. In an economy with financially excluded consumers, monetary policy has to assign a greater weight to stabilising output, he said.
Patra said going ahead as financial inclusion rises even further in India, consumption volatility as a source of output volatility can be expected to wane.
This will provide headroom for monetary policy to remain focused on minimising inflation volatility, which brings welfare gains for all, he added.
Central banks are integrally involved in policy drives that help in expanding financial inclusion as they have to take into account the true financial structures of the economies where they conduct monetary policy, he further mentioned.
RBI presented the monetary policy on December 8 and again they have kept the repo rate and reverse repo rate unchanged. Citing the need to support the economy, RBI governor Shaktikanta Das announced what many experts had maintained: that the central bank will leave rates unchanged, especially given the looming threat of Omicron variant of the Covid virus.
MPC has been given the mandate to maintain annual inflation at 4 per cent until March 31, 2026, with an upper tolerance of 6 per cent and a lower tolerance of 2 per cent.
Observing that economy is slowly recovery from brief hiatus, the Governor said, some of the high frequency indicators reflect recovery.
(With inputs from PTI)