Extension given to Mr. Shaktikanta Das, RBI governor, is good for the markets

The first is the ability to deal with conflict and collaborate with the government, which is very important in public policy. Mr. Das has taken along all the stakeholders- government, markets, banks, employees and public opinion. His successful tenure supports the view that the right candidate for Governorship is one who has worked with the government as at the end of the day the central bank and Ministry of Finance are part of the same broader set up.

The second has been the way the central bank has worked tirelessly during the pandemic times. This was critical because for the first time the RBI came up with very innovative tools like long-term repo operation (LTROs), TLTROs, operation twist, V3R, GSAPs etc. to ensure that targeted liquidity was available to the market.

Third, restructuring of loans of SMEs, one-time restructuring (OTR) for larger companies and moratorium were some key measures taken to ensure that there were no adverse consequences of the lockdown on the quality of assets. The possibility of large defaults was always there, and this was guided well through these measures, and it does look like that the worst is over on this count.

The fact that the Governor has reiterated the central bank position when reading out the credit policy statement is comforting as it is known that the easing of liquidity must end sometime, and rates must move up. But providing guidance on the distance to these changes is important and must be calibrated which is what the Governor has been doing by stating the gradualism approach. This means no rude shocks, which is the way to go.