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The RBI said government consumption will continue to support current economic demand, while private consumption will likely lead the recovery when it takes hold after the COVID-19 outbreak eases.
At a time when the economy is severely hamstrung by the novel coronavirus pandemic, the RBI expects severe contraction in gross domestic product in the first half of this financial year.
With a nationwide lockdown and people mostly remaining indoors, the usage of cash increased abnormally, the RBI said, forcing it to undertake expansionary policy measures to ensure adequate liquidity in the system.
The RBI said it took a series of steps to counter the effects of COVID-19, which led to improvement in monetary transmission in the second half of 2019-20.
The central bank reiterated its Monetary Policy Committee's move to bring down the repo rate - or the key interest rate - by a cumulative 250 basis points between February 2019 and June 2020, as growth-related risks got accentuated by COVID-19 amid inflationary concerns.
More protracted spread of the coronavirus pandemic, deviations of the monsoon from the predicted normal rains and global financial market volatility are key downside risks to growth, the central bank said in its annual document.
The RBI said the coronavirus pandemic has affected over 200 countries, bringing global economic activity to a near standstill.
Highlighting that there is a need to find alternatives to bank finance, the RBI said capital markets and foreign direct investment "offer opportunities to bring in investors with a relatively longer-term view that is conducive to attracting durable capital as well as embedded technology".
The central bank also said that promotion of the corporate bond market, securitisation to enhance market-based solutions to the problem of stressed assets, and appropriate pricing and collection of user charges should continue to receive priority in policy attention.
Meanwhile, the RBI's total income increased 28.97 per cent to Rs 1,93,036 crore in the year 2019-20, compared to Rs 1,49,672 crore in the corresponding period a year ago. The Reserve Bank of India follows a July-June financial year.
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