Once again, the Reserve Bank of India was ready for timely intervention. It is clear from the announcements made after the Monetary Policy Review meeting that the apex bank is moving ahead with measures that will help stimulate the economy during the crisis.
Although it has decided to keep interest rates unchanged, the steps taken to increase the availability of funds are welcome. The repo rate will be 4 per cent and the reverse repo rate will be 3.75 per cent. Due to high inflation, the RBI India has no choice but to cut interest rates. Earlier, the RBI had said it would continue to cut repo rates in the face of favourable inflation. The repo rate has been reduced by 2.50 per cent in the last one and a half years. The repo rate fell to a nine-year low of 4 per cent from 6.50 per cent.
Inflation is now well above the target set by the Reserve Bank. Under such circumstances, the RBI will reduce interest rates to control inflation in general. The apex bank is taking a “balanced” approach now because doing so would adversely affect the economy, which continues to be in crisis. The RBI is taking other measures to increase the liquidity in the economy as it has no choice but to cut interest rates.
Measures taken by non-banking financial institutions to increase liquidity will help increase market consumption. This is an important step towards strengthening the economy. In our country, where a large number of people do not meet the credit eligibility criteria of banks, the presence of non-banking financial institutions is indispensable in increasing the availability of credit. Therefore, the move to improve their availability of funds is welcome. After the meeting of the Monetary Policy Committee, Reserve Bank Governor Shaktikant Das said that the government will continue to pursue policies that create liquidity in the economy.
The RBI has taken steps to liberalise measures to facilitate consumption. Transactions through contactless cards have been increased from Rs.2,000 to Rs.5,000. Transactions through the RTGS system were extended to 24 hours.
The RBI has changed its GDP estimates for the current fiscal year on the back of signs that the economy is recovering faster than expected. The RBI has forecast a 7.5 per cent slowdown in GDP for the current financial year. Earlier, the decline was estimated at 9.5 per cent.
The RBI has also come to the conclusion that a section of experts support the forecast that the economy will return to the path of growth by the second half of the current financial year. The RBI has forecast 0.7 per cent growth in the January-March quarter. The RBI has projected a growth rate of one per cent in the October-quarter.
The RBI intervenes more effectively to stimulate the economy than the central government. The measures taken by the RBI to increase the availability of funds have played an important role in the recovery of the economy
