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The revised monetary policy committee held the interest rate or repo rate unchanged at 4 %. The subsequent interventions are however expected to lower the market rate lower. RBI has declared steps that may send another wave of liquidity to the financial system in line with its response after Covid-19's outbreak. The most important effect on the entire continuum of market interest rates lies in this future liquidity or credit supply. The general message is that the central bank will aim to do its best to revitalize the economy.
Now growth must be the focus, says the Governor. RBI expects that GDP will be contracted by 9.5 per cent in 2020-21 with downside risks. The recession of this immensity would be the largest one on record. Focusing on inflation has plummeted, even though July-September is expected to be an estimate of 6.8 per cent. MPC concluded that the latest market upward rise was triggered by supply disturbances after the lockdown. You foresee a "three-speed recovery," coupled with the accelerated worsening of the shutdown impact in a particular sector. Standardization of the supply chain could reduce inflation.
It is improbable to catalyze an early retrieval. All the stops by RBI have been pulled out. There is nothing more the Central Bank can be called for. The puzzle that remains is the mindset of the Government. Monetary policy performs utilizing financial intermediaries like banks. Their response depends heavily on their viewpoint. The Government will use a tailored fiscal plan over here to pull its weight. It would supplement monetary policy and lead to more credit from the banks. There is no reasonable time than now for a fiscal plan. RBI’s incredible effort will be conceited if it is not impending.
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