Amid several rating agencies and think tanks slashing India’s economic growth projections for 2020-21, the Reserve Bank of India (RBI) announced a slew of measures which will inject an additional Rs 3.74 lakh crore into the system – amounting to nearly 2 per cent of the GDP– to combat the severe economic impact in the wake of the spread of the novel coronavirus.
The announcement came just a day after Finance Minister Nirmala Sitharaman announced a Rs 1.7 lakh crore relief package for the poor.
The RBI package will help in speeding economic recovery once life returns to normal. The central bank’s monetary policy committee met on Friday, much ahead of its scheduled meet slates in April and also decided to reduce the repo rate—the rate at which banks borrow from RBI—by 75 basis points to 4.4 per cent. The quantum is larger than expected.
RBI also reduced the mandatory cash reserve ratio (CRR) — the proportion of deposits banks have to mandatorily park with the central bank — by 100 basis points to 3 per cent with effect from March 28 for a period of one year. This move alone will inject Rs 1.37 lakh crore into the banking system. The reverse repo rate, too, was lowered by 90 basis points.
Addressing the media through a video conference, RBI Governor Shaktikanta Das announced a three-month moratorium on term loans coupled with relaxation on interest payments on working capital loans.
Das assured that this unprecedented situation was being closely monitored and all necessary steps – unconventional and unconventional —would be taken as and when required. He added that RBI would ensure that India’s financial stability was not impacted.
India has already gone into a 21-day national lockdown to contain the spread of the killer disease even as the number of cases is gradually rising. The number could rise in the next dew days with more tests being conducted. While it is commendable that India has taken the necessary steps without much delay, it will be critical to design a package for sectors such as aviation, hospitality, trade among others — the worst impacted – to facilitate the economic recovery and ensure that jobs are retained..