RBI unveils Rs 1 Lakh Cr liquidity infusion to fight virus effect

Reserve Bank of India (RBI) governor Shaktikanta Das announced a Rs 1-lakh-crore liquidity infusion for banks through a long-term repo operation (LTRO) at the central bank’s policy rate of 5.15%. It also announced a second six-month dollar-swap facility. Under this, the central bank will make available $2 billion to the forex markets for six months.

“The RBI has several policy instruments at its command and stands ready to take all necessary measures to ensure that the effects of the Covid-19 pandemic on the Indian economy are mitigated and financial markets and institutions in India continue to function normally,” said Das, announcing the special measures.

While industry associations were disappointed that the RBI did not announce a mid-term revision in policy rates, bankers said that the repo will bring down interest rates.

SBI chairman Rajnish Kumar said, “The RBI decision to ensure additional liquidity through LTRO and swap transactions will ensure the twin objectives of further compression in term structure of interest rates and ensuring dollar liquidity.”

The governor also urged members of the public to shift to digital channels for bill payments and use other electronic services like mobile banking, internet banking and cards to limit the fallout of the coronavirus pandemic by avoiding social contact and visits to bank branches.

In his interaction with the media, the governor also did not rule out a mid-term rate revision. “The repo rate decision can only be taken in the MPC (monetary policy committee) meeting as per the RBI Act, but I don’t rule out anything. I am not ruling out any possibility,” Das said.

“Tentative estimates of consequent loss of global growth are currently placed in the range of 0.4% to 1.5%. India is not immune to this pandemic. Covid-19 could impact economic activity in India directly through trade channels, especially in electronics, drugs, pharmaceuticals, chemicals, etc, in which the exposure to China is relatively high. The second round of effects of the pandemic could operate through a slowdown in growth in the domestic economic growth,” said Das.

The governor said that the central bank would provide an assessment of the economic impact of Covid-19 in India in its monetary policy review. He said that the impact of the virus was still playing out, which required the central bank to use its firepower in a calibrated manner.

“Sectors such as tourism, airlines, hospitality industry and domestic trade and transport are suffering a loss of activity. Spillovers are being transmitted through finance and confidence channels to overseas and domestic equity markets. Forex and bond markets are not immune. There is considerable uncertainty about the duration of the pandemic and the currently available estimates of its adverse effects will undergo sizeable revisions,” said Das. #casansaar (Source - RI, TNN, Times of India)