Mumbai: All-out efforts are needed to mitigate the adverse impact of the Covid-19 pandemic, and the RBI will use any instrument necessary to revive growth and preserve financial stability, according to the minutes of the central bank's policy meeting.
The Monetary Policy Committee (MPC), headed by Reserve Bank of India (RBI) Governor Shaktikanta Das, was originally scheduled for March 31, April 1 and 3, 2020, but was advanced in view of the coronavirus pandemic.
After the three-day meeting which ended on March 27, the RBI reduced the key policy rate by 75 basis points.
To mitigate the economic difficulties arising out of the virus outbreak, the government of India has announced a comprehensive package of Rs 1.70 lakh crore, covering cash transfers and food security, for vulnerable sections of society.
As per the minutes of the MPC meet, released by the RBI, Das said the global macroeconomic situation has abruptly worsened in the last fortnight or so.
In his opinion, "there is a rising probability" of a global recession, which may be deeper than the one experienced during the global financial crisis.
"In India also, the near-term growth outlook has deteriorated sharply: initially reflecting global spillovers and the amplification of the impact of Covid-19; and thereafter, due to the much-needed efforts by the government to contain the pandemic by declaring a nationwide lockdown," he said.
On the inflation front, Das said the outlook has changed drastically.
The governor said the usual uptick that begins in summer months may remain subdued if demand conditions take longer to normalise. The weakening of domestic aggregate demand may also help to contain core inflation.
"The Covid-19 pandemic is an invisible assassin which needs to be contained quickly before it spreads and wreaks havoc on valuable human lives and the macro economy.
Das said monetary policy needs to proactively arrest any deterioration in aggregate demand as he advocated a 75 basis reduction in repo rate.
"The Reserve Bank will continue to remain vigilant and will not hesitate to use any instrument Â conventional and unconventional Â to mitigate the impact of Covid-19, revive growth and preserve financial stability," he said.
RBI Deputy Governor and MPC member Michael Debabrata Patra said India has locked down and a state of siege prevails in wake of coronavirus outbreak.
Several types of activities have come to a standstill with social isolation, supply disruptions, demand contraction and heightened anxiety.
In these challenging circumstances, Patra opined monetary policy has to assume an avant garde role.
Ravindra H Dholakia too voted for the rate cut.
"There is still enough space for the policy rate cut as and when required to support growth recovery going forward since inflation is likely to be under control," he added.
Pami Dua and Chetan Ghate had advocted a reduction in repo rate by 50 basis points.
The RBI went ahead with the majority vote and reduced the key lending rate by 75 basis points