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RBI unleashes another round of quantitative easing to limit economic damage of the second wave

The Reserve Bank of India this morning announced a series of measures to limit the economic damage caused by the advent of the second wave of Covid-19. It builds on last year’s quantitative easing (QE), an increase in the amount of potential money supply for the economy.

The unscheduled announcement by RBI governor Shaktikanta Das can be separated into three categories.

Also read: RBI allows fresh moratorium for some small borrowers amid Covid-19 crisis

One, special provisions have been provided for banks to lend to earmarked segments of the economy at lower interest rates. Notable among these sectors are vaccine manufacturers, pathology labs and micro and small enterprises.

Two, some sections of relatively small borrowers will now have the opportunity to restructure their loans as the patchwork of lockdowns across India is likely to negatively impact their cash flows.

Three, state governments who are in the frontline of the battle against Covid-19 will be given the benefit of a relaxation in their overdraft facilities.

These measures are welcome and perhaps the most important aspect is that RBI has reacted fast. The quicker the reaction in the current situation, the higher the probability of limiting the damage. Now, both RBI and the Centre need to keep track of how these measures are playing out and be prepared to back them with other steps.



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