Heavy Lifting By RBI To Revive Economy
Nish Bhatt, Founder & CEO, Millwood Kane International
“In a surprise move RBI’s rate setting committee – the MPC met off cycle from May 20-22 andannounced a slew of measures in light of subdued economic situation. This is the second timethat the MPC met off cycle. Like global central banks, RBI has been doing the heavy lifting in this fight against COVID19.
MPC announcing a 40 bps cut in repo rate from 4.4% to 4% will help boost lending activity, it will aid businesses looking for capital at a cheaper rate. Further cut in reverse repo willdiscourage banks to park its funds with RBI and help liquidity as banks will be forced tolend given lowered reverse repo rate.
The fact that the policy stance remains Accomodative indicates central’s bank intention tointervene if need be going forward.
Emerging Markets facing risk of fund outflows and a negative growth rate for FY21 are a cause ofconcern, but agriculture and allied activity remaining stable, normal monsoon prediction by IMDand high forex reserves are big positives.
The most crucial announcement by RBI being on the regulatory front, rolling over special facilitywith SIDBI for another 90 days, extension in loan moratorium for another 3 months will help theliquidity situation. Central bank’s move to give foreign investors another 3 months for deploymentof funds will help foreign investments.”