India’s central bank moves to inject liquidity into economy amid 21-day shutdown

The Monetary Policy Committee (MPC) of India’s Central Bank was supposed to announce new financial measures today in response to

reserve bank india

Photo: Aniruddha Chowdhury/Mint

The Monetary Policy Committee (MPC) of India’s Central Bank was supposed to announce new financial measures today in response to a sinking global and domestic economy. Instead, in an unexpected move last week, the committee cut repurchase interest rates by 75 basis points from 5.15% to 4.4%

India has been slow to respond to the COVID-19 pandemic, only beginning a three-week national shutdown last week. Still, the MPC’s decision should introduce badly needed liquidity into the economy, which will see a dearth in spending and productivity over the next few months.

The central bank noted in its announcement that fiscal measures are just as important in protecting India’s economy. But the government has implemented a comparatively small aid package of $22 billion (1% of GDP) for displaced workers, which will do little to improve everyday life for average Indians under the epidemic. This is particularly true for the hundreds of millions of people in the informal sector, who amount to more than half of the country’s employed laborers. Expect pressure to build on the government to increase direct cash payments to workers and loans to businesses undergoing an extended quarantine.

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