Future Policies Need To Be Tailored To Support Economy: RBI Executive Director
A police officer walks past the Reserve Bank of India (RBI) building in Mumbai, India. (Photographer: Kanishka Sonthalia/Bloomberg)

Future Policies Need To Be Tailored To Support Economy: RBI Executive Director


Future economic policies need to be tailored towards supporting the economy, depending on how effects of pandemic play out, Reserve Bank of India executive director M Rajeshwar Rao said on Friday.

He said the first set of responses from the Reserve Bank of India was to ensure that the markets continue to function and ensure solvency in the financial sector.

Several measures, including reduction in Cash Reserve Ratio, special finance facility, Long Term Repo Operations and Targeted Long Term Repo Operations were announced, he said at a webinar organised by Assocham.

As a result of various measures, he said, the RBI injected around Rs 6.5 lakh crore liquidity in the banking system during the pandemic.

Going forward, he said, “We need to see how the impact is going to be there on the economic activities of the various players, and once we get a fix on this issue perhaps the policy responses could be appropriately tailored. We have to see how the situation evolves and based on evolving situation the policies could be suitably modified to address concerns”.

Emphasising that the world and India will not remain in the grip of Covid-19 forever, he said, “not in a distinct future this pandemic will end through combination treatment, vaccination and achievement of herd immunity. Further, future economic policies need to be tailored towards supporting the economy as and when the effects of pandemic play”.

Rao said once the immediate priority of addressing the health issues is sorted out, the second step could be to ensure the sustainability of existing businesses.

“We need to approach stage-by-stage, so the first priority at this juncture is going to be the health and protection of the people, once we get a certain degree of comfort on that aspect, the second segment will come into play,” he said.

With the policy interventions, he said, the interest rate on commercial and government borrowing have hit lowest in the decade.

Also read: RBI’s Moratorium Circular Not Applicable To Mutual Funds, Bombay High Court Says 

RBI’s benchmark policy rate or repo rate has been brought down to 4%, the lowest ever.

“The policy repo rates which were lowered by 135 basis points between February and December 2019 were further reduced by another 115 basis points since March 2020 taking the cumulative rate cuts to about 250 basis points and at 4%, the policy rate is at one of its lowest ever levels,” Rao said.

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