RBI's calculated gamble

25 MAY,2020 | MEDC


 

The RBI has finally officially announced that the Indian economy will contract in the current financial year. The situation is evolving rapidly and only agriculture provides some hope for a comeback. With this year’s monsoon predicted to be normal, food inflation is not likely to be a worry. However, if the lockdown persists for much longer and supply chains do not get restored soon enough, there could be issues on the economic front. The MPC’s decision to cut the policy rate by 40 bps shows that inflation remains within the RBI’s comfort zone, and that the Central Bank believes that it is growth that now needs a stimulus. A lot of restructuring in the financial sector is now required, but without adequately understanding the dynamics of cash flows it could be unproductive and even counterproductive. The RBI has infused liquidity into the system, and it is to be hoped that it spurs economic activity.

*Photo Credit: Google

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