NEW DELHI: Admitting that the economy took a much bigger hit than anticipated, the Monetary Policy Committee (MPC) of the Reserve Bank of India harped on the need to ensure easier financing to revive it after the lockdown is lifted by capitalising banks, minutes of its meeting released on Friday revealed.
“Given the enormity of a collapse in demand, the need is to move ahead full throttle to ease financing conditions further so as to revive consumption and revitalize investment. Since banks are the key players in financing consumption and investment, it is also imperative that they remain adequately capitalised,” RBI Governor Shaktikanta Das said.
Das added that the key challenge for monetary policy at this stage is to revive domestic demand to avoid any harmful effect on income and employment in the short run and potential growth over the medium term. Other members felt that to be able to do so, banks must remain adequately capitalised.
“For monetary policy actions to transmit fully to the credit market, it is important that banks remain well capitalised,” RBI’s executive director and new MPC member Janak Raj said.
All MPC members felt that the impact of COVID on the economy was far severe than anticipated.
One of them, RBI Deputy Governor Michael Debabrata Patra, felt it will take years for the damage to repair.
“In fact, my view is that the damage is so deep and extensive that India’s potential output has been pushed down, and it will take years to repair,” Patra emphasised.
The MPC meeting, scheduled from June 3 to 5 was advanced to May 20 to 22 in view of the deteriorating economic condition due to the lockdown to contain the coronavirus.
Some disagreement on repo rate cut size
While the meeting decided to cut policy rates by 40 bps to 4%, there was some disagreement on the quantum. Chetan Ghate voted for 25 bps, saying big cut should be done when the economy starts reviving