External Factors: The global economic landscape and geopolitical uncertainties can impact the Indian economy. External factors like changes in oil prices, trade tensions, or currency fluctuations can influence India’s economic performance. In such a scenario, the RBI might be cautious about using policy balm as it may not effectively address the root causes of the economic pains.
Source:- the economic times
Incomplete Transmission: The effectiveness of monetary policy measures in stimulating the economy relies on their transmission to the real economy. If banks are not fully passing on rate cuts to borrowers or if there are bottlenecks in the credit distribution system, the intended impact of policy measures may not materialize. The RBI might be reluctant to deploy policy balm if it anticipates incomplete transmission, as it may not lead to the desired economic outcomes.
Source:- bq prime
Fiscal Space: The availability of fiscal space plays a significant role in determining the need for aggressive monetary policy measures. If the government has the capacity to implement expansionary fiscal policies, such as increased public spending or tax cuts, it might reduce the burden on the RBI to rely solely on monetary tools.
Asset Bubbles: Aggressive policy balm can lead to the formation of asset bubbles, such as in the real estate or equity markets. The RBI must be cautious about creating unsustainable price bubbles that could pose risks to financial stability in the long term.
Long-Term Sustainability: While policy balm can provide short-term relief, the RBI must consider the long-term sustainability of its measures. Relying too heavily on monetary policy to address economic pains might lead to a situation where the central bank exhausts its ammunition without achieving lasting results.
In conclusion, the RBI may exercise caution in using policy balm despite economic pains due to concerns about inflation, external factors, incomplete transmission, fiscal space, asset bubbles, and long-term sustainability. Striking a balance between short-term stimulus and long-term stability is crucial for effective monetary policymaking
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