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COVID 19 Pandemic: What Could Central Bank’s Cut Rate Policy Mean For India?

Supriya Tyagi by Supriya Tyagi
April 18, 2020
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With lockdown extended until 3rd May 2020, the Centre is prepping up for a financial relief package to aid the economy hit hard due to COVID 19 lockdown. It has been almost a month since the first lockdown was announced to curb to contain the spread of coronavirus cases in India. However, what was expected to be a temporary shutdown had been extended due to a steep rise in the number of cases, especially in Tier-1 cities like Mumbai and Delhi.

Nevertheless, this step has deepened India’s economic crisis and has affected workers employed in the unorganized sectors. Although the government had announced a Rs 1.7 trillion relief package under Prime Minister Garib Kalyan Yojana, experts have termed it as inadequate and have also voiced for some support to the stressed industries.

Recently PM said the RBI announcements will greatly enhance liquidity and improve credit supply in the system. These steps are expected to assist small businesses, MSMEs, farmers and the poor. Furthermore, it would also help all states by increasing Ways and means advances limits.

To deal with the impact of the COVID-19 pandemic, the RBI has cut the reverse repo rate and announced a slew of measures including re-finance window of Rs 50,000 crore. This allows banks to earn more on their savings which would invariably lead to a lower interest rate on loans and credit given by the banks to consumers.

The Central bank’s governor Shantikanta Das in a video message also announced special refinance facilities for a total amount of Rs 50,000 crore to Nabard, Sidbi, and National Housing Bank to enable them to meet sectoral credit needs. Furthermore, falling prices would work in favor of RBI and the benefits could be given to borrowers.

These are difficult times and for a country which relies heavily on its primary sector, the government and central bank must step in. RBI’s steps to cut repo rate and special refinance facilities to Nabard, Sidbi, is likely to enhance liquidity and improve credit supply, thereby support public and small businesses survive amidst nationwide shutdown during to COVID-19.

Tags: coronavirus outbreakCOVID-19Reserve Bank of India
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Supriya Tyagi

Supriya Tyagi

Vedika has studied law and economics and worked in financial services before starting her career as a writer with Finance Infinity. She is always keen to analyse financial trends along with the government policies.

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