{"id":8767,"date":"2020-04-17T14:54:01","date_gmt":"2020-04-17T14:54:01","guid":{"rendered":"\/blog\/?p=8767"},"modified":"2020-04-17T14:54:32","modified_gmt":"2020-04-17T14:54:32","slug":"what-direction-will-the-rbi-take-in-response-to-slowing-growth","status":"publish","type":"post","link":"https:\/\/tata-blog.osian.dev\/blog\/wealth-services\/what-direction-will-the-rbi-take-in-response-to-slowing-growth\/","title":{"rendered":"What Direction will the RBI take in Response to Slowing Growth?"},"content":{"rendered":"\n

At present, the Indian economy is estimated to be experiencing its worst slowdown in nearly a decade. The Advance Estimates of the National Statistical Office (NSO) projected the growth of the gross domestic product (GDP) to be 5% in 2019-20, while some even predicted it to be far lower. This is in stark contrast to the official growth rate of 8.2% in 2016-17 and is made more dramatic when comparing quarterly figures, falling from 8.1% in January-March 2018 to 4.5% in July-September 2019.<\/p>\n\n\n\n

This economic slowdown has impacted not only businesses and consumers but essential fiscal policies across the country, not the least of which are determined by directives from the most prominent financial body in the country – the Reserve Bank of India (RBI). In fact, as a direct impact of the slowdown, the RBI had to lower its growth forecast of GDP for the year ending March 2020, from 6.1% to 5% .<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Source<\/strong>: Bloomberg<\/p>\n\n\n\n

Amidst the concerns about the weakening economy, however, the Reserve Bank of India has\nrecently stepped up to take a more active and substantial role to re-stimulate\neconomic growth in the country. Many of the RBI\u2019s recent measures and policy announcements are\nbeing hailed by industry experts as \u201cprogressive\u201d and \u201cforward looking\u201d.
\n
\nTo better understand the direction in which the Reserve Bank of India is heading in response to\nthe economic slowdown, let us take a closer look at some of its most recent and\nprominent measures.<\/p>\n\n\n\n

Policy\nRates Remain Unchanged
\n<\/strong>In a largely safe move to keep the status quo, the Monetary\nPolicy Committee (MPC) of the RBI voted unanimously to not cut policy rates and retain them\nunchanged at 5.5 per cent. The reverse repo rate also stays unchanged at 4.90\npercent.[3].<\/p>\n\n\n\n

To recap, policy rate, or repo rate is the rate at which commercial banks\nborrow funds from the Reserve\nBank of India by selling their securities. By keeping its policy rates\nunchanged, the RBI has\nadopted an accommodative stance to support economic growth, as rate\nmodification was deemed a non-priority. Instead, the RBI has opted to focus on checking the\ncountry\u2019s headline inflation which has been deemed as \u2018highly uncertain\u2019. <\/p>\n\n\n\n

Additional Read<\/strong>:- RBI Cuts Repo Rate by 75 bps to 4.40% to Fight Covid-19 <\/a><\/p>\n\n\n\n

Introduction\nof the LTRO
\n<\/strong>While a repo\nrate cut has been absent from the Reserve Bank of India\u2019s recent policy, the\nfinancial body has nevertheless ensured that liquidity is improved in the\nbanking system. This is being achieved by its introduction of the Long Term\nRepo Operations, or LTRO, from February 15 onwards.<\/p>\n\n\n\n

\"Economic<\/figure>\n\n\n\n

Typically, loans that have higher maturity periods – such as 1 year or 3 years – are accompanied by higher interest rates as compared to short term, or repo loans. However, with the LTROs, the Central Bank can provide loans to commercial banks at a much cheaper rate, that is the current repo rate. These operations are guaranteed to bring down cost of funds for struggling banks and inject liquidity in the banking system by as much as Rs. 1 lakh crore [4]. Therefore, while limited by the inflation outlook to retain its repo rate, the RBI has managed to devise a creative method to ensure durable liquidity to the banking sector with the LTRO.

Other Significant Measures<\/strong>
Apart from these measures, the RBI has also sought to boost retail in the country by pushing for more active credit policies. Firstly, it has extended the one-time restructuring scheme for loans to MSMEs, which was to expire on March 31. The revised date has now been pushed till Dec. 31, 2020. According to the RBI, this move is set to help \u201celigible MSME entities that could not be restructured under the provisions of the circular dated January 1, 2019 and the MSME entities that have become stressed thereafter\u201d [5]. In addition to this, the RBI has also provided a Date of Commencement of Commercial Operations (or DCCO) Extension for realty projects and a Cash Reserve Ratio (CRR) Exemption for incremental funding to banks.<\/p>\n\n\n\n

Additional Read<\/strong>:- RBI Press Conference on Monetary Relief Measures in the Time of COVID-19: Key Takeaways<\/a> <\/p>\n\n\n\n

Measures such as these will not only help stimulate the economy but will also help uplift the position of the RBI as a body that fulfills goals greater than merely setting policy rates and meeting a pre-set macroeconomic target. This was also reiterated by the Governor of the Reserve Bank of India, Shaktikanta Das after a significant policy announcement made early last month. In a press conference, he stated that \u201cIt is important not to discount the RBI\u201d and that \u201cthe central bank has several instruments at its command that it can deploy to address the challenges that the economy currently faces in terms of sluggishness in the growth momentum\u201d [6]. With these assurances and initiatives by the Reserve Bank of India, the country\u2019s economy certainly looks to be heading down a hopeful path. However, it is just as essential to nurture one\u2019s personal and business finances and ensure that they stay protected from economic turmoil.

To that end, the wealth management services provided by the trusted Tata Capital Wealth are ideal for both individuals and businesses. With Tata Capital Wealth Management<\/a>, your finances are secured by our hand-picked team of wealth managers, wide range of investment products and holistic, result-oriented services. Whether it be investment, protection or financing, we have the solutions to meet your specific financial goals. <\/p>\n\n\n\n

Know More<\/a><\/div>\n","protected":false},"excerpt":{"rendered":"

At present, the Indian economy is estimated to be experiencing its worst slowdown in nearly a decade. <\/p>\n

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