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RBI sees V-shaped recovery, likely room for policy easing

Topics Covered: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

RBI sees V-shaped recovery, likely room for policy easing:


Context:

Forecasting a V-shaped recovery, Reserve Bank of India has said that if growth momentum continues and inflation stays benign there would be room for policy action to support growth.

  • This comes at a time when the central bank has started ‘normalising’ the liquidity in the money markets by draining out the surplus it had pumped in to stave off an economic crisis in the wake of the Covid-19 pandemic.

What are the various Shapes of economic recovery?

  1. The Z-shaped recovery is the most-optimistic scenario in which the economy quickly rises like a phoenix after a crash. It more than makes up for lost ground (think revenge-buying after the lockdowns are lifted) before settling back to the normal trend-line, thus forming a Z-shaped chart.Z-Shaped_Recovery
  2. In V-shaped recovery the economy quickly recoups lost ground and gets back to the normal growth trend-line.V-Shaped_Recovery
  3. A U-shaped recovery is a scenario in which the economy, after falling, struggles and muddles around a low growth rate for some time, before rising gradually to usual levels.U-Shaped_Recovery
  4. A W-shaped recovery is a dangerous creature — growth falls and rises, but falls again before recovering yet again, thus forming a W-like chart.w-Shaped_Recovery
  5. The L-shaped recovery is the worst-case scenario, in which growth after falling, stagnates at low levels and does not recover for a long, long time.L-Shaped_Recovery
  6. The J-shaped recovery is a somewhat unrealistic scenario, in which growth rises sharply from the lows much higher than the trend-line and stays there.other_shapes

InstaLinks:

Prelims Link and Mains Link:

  1. Have a brief overview of various curves mentioned above.

Sources: the Hindu.