RBI Measures to Tackle the Economy

Near the end of March, RBI governor Shaktikanta Das announced that its Monetary Policy Committee (MPC) decided to advanced its meeting in view of the COVID-19 crisis and voted for a massive reduction in repo rate in order to mitigate economic risks.

New relief measures to tackle economic crisis wake of COVID-19

RBI’s Significant Repo Rate Cut


The RBI’s MPC has voted in favour of an interest rate cut to the tune of 75 basis points, which brings the repo rate down to 4.4 percent from 5.15 percent. The reverse repo rate has also been reduced by 90 basis points to 4 percent in a bid to maintain financial stability and revive growth.

RBI Governor said that the outlook remains extremely uncertain at the time and going forward much will depend on how India battles COVID-19 pandemic.

“The outlook is now heavily contingent upon the intensity, spread, and duration of the pandemic. There is a rising probability that large parts of the world will slip into recession,”

Das added.
"MPC noted that global economic activity has come to a near stand-still as COVID-19 related lockdowns and social distancing in affected countries. Expectations of a shallow recovery in 2020 from 2019's decade low in global growth have been dashed,"
Shaktikanta Das said.

RBI’s Relief on EMIs and Loans


It also announced that banks are permitted to allow a three-month moratorium for on payment of EMIs on all term loans that were outstanding on March 1.

Since then, most of the banks have followed suit after the announcement and implemented these measures. This is one of the key takeaways from RBI’s announcements as many people have been financially affected due to the lockdown implemented to prevent novel coronavirus from spreading in India. But it remains to be seen as to what extent this helps customers. 

RBI’s Other Liquidity Measures


Apart from reducing key rates, the RBI also announced a slew of liquidity measures related to TLTRO (Targeted Longer Term Refinancing Operations), CRR(Cash Reserve Ratio), and MLCR(Marginal Cost of funds based Lending Rate) to ease mounting pressure.

“It has been decided to reduce the Cash Reserve Ratio (CRR) of all banks by 100 basis points to 3% of Net Demand and Time Liabilities with effect from the fortnight beginning March 28 for a period of 1 year,” the RBI governor announced.

The announcement came just a day after the government unveiled a Rs 1.70 lakh crore relief package to shield poor people from the virus outbreak. The RBI’s relief measures announced in view of the COVID-19 pandemic stands at 3.2 percent of the GDP.

Das assured that the fundamentals of India’s economy are sound and added that it will continue to support the economy as long as required.

Tough times never last, only tough people and institutions do. The RBI is at work and at mission mode. Will do everything required to mitigate the effects of COVID-19 pandemic,” he said.

Earlier, the central bank governor said it has enough reserves to tackle the crisis and that it would step in whenever the situation worsens.

RBI has also been conducting many other monetary operations for better liquidity management as it scrambles to keep the banking sector healthy in a bid to support the economy in the wake of the novel coronavirus pandemic.