'Massive liquidity led to disconnect between economy and stock markets': RBI Governor

Reserve Bank of India Governor Shaktikanta Das on Friday said there was a clear disconnect between the steep rise in stock markets and the state of the real economy, as surplus global liquidity has led to increasing asset prices across the world. He said that a ‘correction’ in stock markets is expected, but the RBI is prepared to take all steps to maintain financial stability.

In an interview with news channel CNBC Awaaz, Governor Das said that this disconnect, caused due to massive liquidity injected by central banks, was a global phenomenon and not particular to India.

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RBI injected crores in the markets

The Governor also stated that global central banks have injected over $6 trillion into financial markets and reduced interest rates to almost zero to overcome the impact of Covid-19 pandemic on the economy. In the same manner, the RBI has also pumped in nearly Rs 10 lakh crore in the markets since March, when the pandemic hit economic activity in the country.

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Shaktikanta Das cited the Franklin Templeton debt fund issue, where RBI opened a Rs 50,000 crore liquidity window for mutual funds to ensure stability in the financial sector.

The Monetary Policy Committee of the RBI also spoke about the disconnect between the market and the fundamentals which carry the risks of disruptive market corrections. The global financial markets also demonstrate a disconnect with underlying economic fundamentals, signifying financial stability risks, particularly for emerging market economies.

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(Image credits: PTI)