Members of the RBI’s Monetary Policy Committee (MPC) have cautioned that the damage caused by COVID-19 and lockdown could “take years to repair” as the economic situation is “extremely gloomy” and high-frequency indicators suggest a “collapse of demand”, according to the minutes of MPC meeting held on May 22.
The RBI panel had slashed the repo rate by 40 basis points (bps) to 4 per cent to boost investment and demand and salvage the struggling economy. The MPC said it’s of the view that the macroeconomic impact of the pandemic is turning out to be more severe than initially anticipated, and various sectors of the economy are experiencing acute stress.
“The destruction of economic activity by COVID-19 and ensuing lockdowns is much more deleterious in terms of loss of basic livelihood, economic security, health and confidence than the range of estimates/projections of GDP and other macroeconomic aggregates suggest,” said an MPC member.
Reserve Bank of India (RBI) Governor Shaktikanta Das said the impact of COVID-19 on the domestic economy has turned out to be far more severe than initially anticipated. “High-frequency indicators for March-April 2020 suggest a collapse of demand.”
“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,” RBI Deputy Governor Michael Patra said.
“The economic situation is, thus, extremely gloomy. While the pandemic is a humanitarian and health crisis, the related lockdown has precipitated a collapse in economic activity, which has come to a near standstill,” MPC Member Pami Dua said.
According to MPC Member Janak Raj, the impact of COVID-19 on economic activity has turned out to be much more acute than initially expected with the nationwide lockdown having been extended from the initial three weeks to nine.
MPC Member Chetan Ghate said several high-frequency indicators point to dire growth outcomes in the near term.
RBI sets up PIDF to push deployment of PoS infra
The RBI has set up a Payments Infrastructure Development Fund (PIDF) to encourage acquirers to deploy points of sale (PoS) infrastructure (physical and digital modes) in tier-3 to tier-6 centres and North Eastern states.
The central bank will make an initial contribution of Rs 250 crore to the PIDF covering half the fund and remaining contribution will be from card issuing banks and card networks operating in the country. ENS
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