The growing uncertainties have left everyone perplexed, the increasing unemployment and economic dip have further disturbed all stakeholders. On the backdrop of the ongoing crisis, the governor of RBI, Shakthikanta Das called for a substantial easing of financing conditions as and when the lockdown is lifted.
The monetary policy committee (MPC) meeting, which was scheduled in June had to be preponed to 22nd May as the economic conditions worsened drastically. The RBI MPC tribunal had cut the repo rate by 40 bps to 4%, so as to boost the investment and demand, and also revive the struggling economy. The central government announced a Rs 20 trillion stimulus package to support individuals and businesses facing acute stress. All of these measures initiated are to help and support demand when the nationwide lockdown is lifted, given the magnitude of disruption. The Monetary Policy Committee (MPC) is a statutory body established by the Central Government, circumscribes the policy interest rate required to achieve the inflation target. The Reserve Bank’s Monetary Policy Department (MPD) assists the MPC in formulating the monetary policy.
Shakthikanta Das, RBI governor along with all other five members of the MPC says that it is vital to ease financing conditions to revive consumption and revitalize investment. Since banks are the strategic players in financing consumption and investment, it is important that they remain suitably capitalized. The principal challenge for monetary policy in the prevailing condition is to restore domestic demand to avoid any detrimental effect on income and employment and inherent growth. Along with the government’s Rs 20 trillion Atmanirbhar stimulus package to provide economic support and shield the vulnerable sections of society, the RBI has also been proactive in managing liquidity to make sure that the funds flow to all units of the economy. While supply chains are likely to be rehabilitated, demand would take far longer to revive to pre-COVID levels. Although support will be provided by government expenditure, overall consumption is likely to slow down due to descent in individual consumption. More than individual consumers, it is investment demand which is expected to not do well.
RBI sets up PIDF
The RBI has set up a Rs 500 crore corpus to promote e-payment infrastructure in Northeastern states. The RBI will contribute a primary aid of Rs 250 crore to the PIDF covering half the fund and the remaining amount will come from the card-issuing bank networks operating in the country.