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Thursday, December 3, 2020

RBI steps to revive economy: Here’s what they mean for you

The Reserve Bank of India has so far taken a slew of measures to combat the economic crisis caused by Covid-19 pandemic. Are the RBI steps to revive economy enough? What exactly do they mean for you? Let’s find out here.

From holding unscheduled policy review meets, opting for deep rate cuts and asking banks to arrange for contingency measures, the RBI has taken many economic measures to tide over the crisis.

Let’s take a look at India’s central bank’s steps so far

  • India reported its first Covid-19 case on January 30. Referring to the coronavirus outbreak in China, on February 6, the RBI announced softening of crude prices and bearish phase in equities.
  • Soon after the World Health Organisation declared the Covid-19 as a global pandemic on March 16, the RBI wrote to banks to continue their business and operational measures.
  • Following this, India’s central bank constituted a team of 150 officials to ensure smooth functioning of the financial system.
  • The RBI announced repo rate cut by 75 basis points, reduction in long term repo operations and CRR by 100 bps to generate Rs 1 lakh crore liquidity. The bank also announced three month moratorium in all loan payments till May end.
  • The bank reduced the money market trading to four hours in April first week.
  • In mid-April it reduced the reverse repo rate by 25 basis point. The RBI also announced Rs 50,000 finance facility for Nabard, National Housing Bank and Sidbi. It also brought alterations in the NPA classification.
  • The mutual funds industry received Rs 50,000 crore special liquidity facility from the central bank in April end.
  • Recently, governor of India’s central bank Shaktikanta Das announced repo rate reduction by another 40 bps. The bank declared another three-month moratorium on repayment of loans to banks till August end.

What do these measures mean for us?

  • This is undoubtedly clear that the RBI has initiated several economic measures to inject enough liquidity in the system. Because of this step, banks can open or continue with their emergency Covid-19 credit lines.
  • The moratorium benefits mean all lenders under the central bank can enjoy some relaxations in terms of payments of loans or installments. And this will not reflect any adverse asset classification. The step is important as it offers some relief to borrowers in these hard times by softening the recovery period.

“The measures announced by the RBI are indeed bold and explicitly reflect the government’s resolve to face the health and economic crises head-on, with special focus on the distress of the common man.” source: Thomas John Muthoot, chairman and managing director, Muthoot Pappachan Group, source: Zee Business

  • The moratorium measures and NBFCs on term loan installments and interests on working capital for three months will also benefit traders and entrepreneurs. Small traders and self-employed persons who are losing businesses owing to months of nationwide lockdown will survive the crisis.
  • According to experts, RBI’s liquidity injection measure will help people belonging to the real estate sector. India’s real estate sector is one of the biggest employment generators.
  • Economists believe that to bear the fruits of the RBI measures, the Centre must provide cash relief to the poor. This will increase demand in the market.

Former RBI governor Raghuram Rajan also spoke of providing cash and shelter to the poor. He also advocated for proper implementation of the Centre and RBI steps to revive economy. Every penny should reach to those it was meant for, he added.

Read more about India’s economy amid Covid-19 pandemic. https://platocast.com/podcasts/state-of-economy/the-economic-cost-of-lockdown/

https://twitter.com/RaghuramRRajan/status/1263709344237043712

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