NEW DELHI: Former RBI Governor Duvvuri Subbarao on Wednesday said that managing a crisis is extremely difficult and the central bank had been successful in preserving the financial stability of the economy during the present Covid-19 crisis. He expects the government’s fiscal deficit can be around 8 percent of the GDP for the current and next year.
Addressing a virtual event organised by industry body CII,’ Subbarao noted that all actions of the RBI were driven by the dual objective of achieving financial stability and preventing a financial crisis, and secondly, transmitting money to productive sectors of the economy. “While managing a crisis is extremely difficult, the RBI has been successful in preserving the financial stability of the economy during the present COVID-19 crisis,” he said.
Subbarao added that though governments and central banks of the world are presently operating from the playbook of the Global Financial Crisis in 2008-09, the coronavirus crisis is quite different. “While GFC was an asset crisis that hit the financial sector first, the coronavirus crisis first impacted the real sector,” he pointed out. The former RBI Governor said there were certain key elements to the central bank’s monetary policy response so far.
“The first was the extraordinary injection of liquidity through Open Market Operations, cut in CRR and SLR. The second was the easing of the financial conditions through the lowering of policy rates, reverse repo rates, Targeted Long-Term Repo Operations for specific sectors and third was the extension of the loan moratorium,” he added.