KOLKATA: Minutes from the latest RBI Monetary Policy Committee Meeting reveal that its founder and RBI Governor Shaktikanta Das assured that Reserve Bank is in mission mode, monitoring the evolving financial market and macroeconomic conditions while using any conventional or unorthodox means necessary to mitigate the impact of COVID-19. He called COVID-19 an unprecedented threat and invisible assassin which has to be contained as soon as possible to prevent it from wreaking havoc on our macro-economy.
The six-member paneled bi-monthly meeting, was held prematurely from March 25th due the extenuating circumstances. The minutes, released by the central bank on April 13th, show Governor Das understanding the need to preserve the lifeline of economy, finances and its seamless flow into every market sectors. Four out of six members voted to reduce the repo rate by 75 basis points to 4.4 percent. Pami Dua and Chetan Ghate voted for a 50-bps rate cut. All members voted for a slashed Reverse repo rate by 90-bps to 4 percent, hoping that these policies might de-stress our economy.
Governor Das lamented about the high frequency indicators such as IIP, railway freight traffic, manufacturing, exports and imports in January/February that showed improvement after several months of contraction/deceleration, before the pandemic. The irrepressible agriculture sector may be a silver lining, with 2019-20 grains production at an estimated 292 million tonnes, Governor Das stated. He added that with COVID-19, other industries and service sector activities are likely to be severely impacted and the extent of adversity since the global slump of FY19 would depend upon the intensity, spread and duration of COVID-19.
MPC said that in the wake of COVID-19 pandemic, market sectors have come to a halt due to supply-disruptions, demand contraction, social isolation and heightened anxiety. But the panel added, “Prospects for the Indian economy now hinge around how pervasive and severe COVID-19 turns out to be, and how long it lasts”. RBI believes that monetary transmission, which had improved recently after a tumultuous 2019, could be seriously undermined due to the tightening of domestic financial conditions. The economic outlook had changed drastically due to volatility in finance markets, a severe drop in global demand and a sharp fall in oil prices, they added and indicated a further scope for policy action to boost economic activity.
Governor Das’ statement included the measures taken by RBI, in light of current events. The measures include purchase and sale of government securities under Open Market Operations during December and January and a full waiver on interest between January 31-July 31, 2020 on retail loans for automobiles, residential housing and loans to micro, small and medium enterprises (MSMEs) and the maintenance of cash reserve ratio (CRR), to ensure better monetary policy transmission. Governor Das concluded optimistically, stating that the macroeconomic fundamentals of the Indian economy are sound and, in fact, stronger than what they used to be, in the aftermath of the global financial crisis.