RBI Governor Shaktikanta Das has said the risk of a second wave of COVID-19 could put sand in the nascent recovery wheels. His deputy, M D Patra, opined that it might take years to regain the output lost on account of the pandemic.

The views were expressed by them during a meeting of the newly constituted Monetary Policy Committee (MPC) held from October 7 to 9. A newly appointed independent member of rate-setting panel, Shashanka Bhide, said uncertainties relating to the COVID-19 pandemic will impact growth and inflation scenarios in the next two to three quarters.

Das also said the decision to cut the benchmark repo rate would depend on the evolving situation with regard to inflation, which is currently above the tolerance level of the central bank, according to the minutes of the meeting released by RBI on Friday.

“I recognise that there exists space for future rate cuts if inflation evolves in line with our expectations. This space needs to be used judiciously to support recovery in growth,” Das said.

In the first quarter of this fiscal, India’s GDP contracted 23.9 per cent.

Deputy Governor Patra said that India has entered a technical recession in the first half of the year for the first time in its history.

“If the projections hold, the level of GDP would have fallen approximately 6 per cent below its pre-COVID level by the end of 2020-21 and it may take years to regain this lost output,” he said.

While voting for keeping interest rate unchanged, RBI Executive Director Mridul K Saggar expressed concern that if current real negative interest rates fall further, it may generate significant distortions that could adversely affect aggregate savings, current account, and medium-term growth in the economy.