The current rally in the stock markets is not consistent with the state of the country's economy

Mumbai, Ta. 21 August 2020, Friday

The current rally in Indian stock markets does not keep pace with the real state of the country's economy and will lead to a correction, RBI Governor Shaktikant Das warned.

The country's and global financial system is currently full of liquidity and therefore stock markets are rising and not in line with the true picture of the economy. "Correction will definitely come but we can't say when it will come," Das said in an interview.

Since the beginning of the current financial year, the Nifty has risen by 20 per cent and the Sensex by 3 per cent and 3 per cent, respectively. The Reserve Bank has maintained interest rates at its review meeting this month but the RBI still has a lot of scope and will use it if needed.

Since February this year, the Reserve Bank has cut the repo rate by 114 basis points. In the last financial year, it was reduced by 12 basis points.

The minutes of today's RBI review meeting indicate that there is little room for further reduction in the repo rate in the current climate. Retail inflation is currently hovering above the Reserve Bank's target range of 6-7 per cent, forcing the repo rate to remain stable.

The Reserve Bank expects the country's GDP to fall sharply, given the impact Corona has had on the country's economy. Compared to the first six months of the current financial year, GDP is expected to improve in the last six months. However, on an annual basis, the GDP figure will remain in the negative zone, the governor added.

The moratorium is a temporary resort. Uncertainty is the biggest challenge right now and a lot depends on when the Covid-18 is discovered. The economy will start to recover after the Covid-12 curve stops rising.