RBI to ensure adequate liquidity in system, cuts reverse repo rate by 25 bps


Mumbai: Reserve Bank of India (RBI) Governor Shaktikanta Das (PTI Photo)

Mumbai: Reserve Bank of India (RBI) Governor Shaktikanta Das (PTI Photo)

Reserve Bank of India Governor Shaktikanta Das on Friday assured that the central bank will use all instruments to deal with the challenges posed by the outbreak of COVID-19.

He also said that this is not the last of the announcements on financial support during the crisis, stating that the central bank will come up with responses in the future in the interest of the economy based on evolving situations.

Pointing out that the Reserve Bank of India (RBI) is monitoring all macro parameters continuously, he said, economic activity has come to standstill during the lockdown.

The impact of COVID-19 is not captured in index of industrial production (IIP) data for February, he said, adding that contraction in exports in March at 34.6 per cent was much more severe than the global financial crisis of 2008-09.

He said vehicle production and sales declined sharply in March and so did electricity consumption.

Appreciating the effort of banks and other institutions in keeping the financial market operational, Das said, there was no downtime of the internet or mobile banking during lockdown and banking operations were normal.

Banks, financial institutions have risen to the occasion to ensure normal functioning during the outbreak of this pandemic, he said.

Announcing other measures, he said, liquidity coverage ratio (LCR) of banks have been brought down to 80 per cent from 100 per cent and will be restored in phases by April next year.

Loans given by non-bank financial companies (NBFCs) to real estate companies will hold a similar benefit as given by scheduled commercial banks, he said.

To improve liquidity for states, he said, ways and means limit has been raised to help them.

Quoting IMF a report, Das said India is expected to post a sharp turnaround in 2021-22 itself.

RBI governor Shaktikanta Das said the inflation is on a declining trajectory and could fall below the central bank’s 4 per cent target by the second half of this fiscal amid challenges posed by COVID-19 pandemic.

He said the consumer price index-based retail inflation has fallen by 170 bps from its January 2020 peak.

“In the period ahead, inflation could even recede further, barring of course any supply-side disruptions and may even settle well below the target of 4 per cent by the second half of 2020-21,” Reserve Bank Governor Das said in an early morning video conference.

Das added that such an outlook would make policy space available to address the intensification of risks to growth and financial stability brought about by COVID-19.

The retail inflation for March fell to a four-month low of 5.91 per cent on cheaper food articles.