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economy | IST

RBI Monetary Policy: Economists decode the actions and its impact on economy

Mini

What we heard on the fiscal front yesterday was perhaps just the start and what we got from the monetary policy in one fell swoop gives a lot of chance for the financial system to actually evaluate all the possibilities and make their plans, said Chief India Economist at HSBC.

A day after the Modi government unveiled its Rs 1.7 lakh crore relief package, the Reserve Bank of India (RBI) has fired its big bazooka to mitigate the impact the COVID-19 outbreak is having on the economy.
The RBI Monetary Policy Committee (MPC) cut repo rate by 75 basis points to 4.40 percent. It was the first time the MPC met outside its bi-monthly meeting calendar. It also cut cash reserve ratio (CRR) by 100 basis points to 3 percent. Further, the RBI announced a three month-moratorium on all instalments due on term loans.
This includes credit card dues as well. This means people paying EMIs for home loans, auto loans, etc. could get some relief. On working capital loans, there's now a 3-month deferment on the interest component. This means that on the fourth month, the interest accrued over these 3 months will have to be paid.
Experts decode RBI actions and way ahead for the economy
V Srinivasan a veteran banker and an independent market expert
“This liquidity infusion, the moratorium, the targeted LTRO -- all these were necessary steps to buy us some time during this lock down period. Clearly, there is lot of pain which everyone is going through and this is the much needed palliative. But again this is not going to sort of solve the problem once we get out of lockdown. More needs to be done probably on fiscal side to try and make sure that whatever we have lost during the lockdown somehow will sort of gain momentum and get back on its feet without any hiccup and that is going to be the challenge here.”
Neeraj Gambhir, President of Axis Bank
“In a lot of sectors where the cash flows problems were building up or were likely to build up, there was this expectation that if the corporate don’t end up paying in time and the cash flows were under challenge, there could be potentially defaults and those defaults will lead to banks becoming risk-averse. Now to the extent that this allows banks to sort of give a relief to these corporates, it addresses to some extent the risk-aversion issue.”
Indranil Pan, chief economist at IDFC Bank
“The first attempt of the RBI more than the rate cut was to free up the logjam that was getting created in the financial system. Going forward as you say that -- if after three months as the things become more or less business as usual and the overall risk of spread of the COVID-19 reduces significantly. specially in India. then the bazooka has to be actually brought out from the fiscal side of the picture and the fiscal has to work its way towards reviving the demand and then only you can get business as usual at least what we were seeing around the January and the February period."
"Even if the risk of the COVID-19 ends this is not the end of the story. The turnaround will be quite adverse and at that point in time it has to be the fiscal, which has to push significantly forward because the scope in terms of further reduction in monetary policy given that the fiscal is loose is getting a little easy at this point in time.”
Pranjul Bhandari, Chief India Economist at HSBC
“What we heard on the fiscal front yesterday was perhaps just the start, even in humanitarian way we may eventually need much more and then perhaps come to other parts of the economy like small businesses and so on. This is just the start at this point."
"What I liked about today’s monetary policy’s decision was that everything came together in one fell swoop. This gives a lot of chance for the financial system to actually evaluate all the possibilities and make their plans. On the other hand fiscal is coming in a most staggered way, so that is sort of one difference between the policy reaction between the government and the central bank that we are seeing right now.”