The COVID-19 pandemic is an invisible assassin which needs to be contained quickly before it spreads and wreaks havoc on human lives and macro-economy, RBI Governor Shaktikanta Das said in the Monetary Policy Meeting on March 24-27. The central bank's panel said COVID-19 had led to a series of a priori indistinguishable shocks -- a sharp slowdown in global demand, volatility in financial markets, a sharp fall in crude oil prices, and virtual freeze of global trade and travel.
In the 'minutes of meeting' report released on Monday, the RBI said it was important to ensure finance, which is the lifeline of the economy, kept flowing seamlessly to various sectors. The central bank committee, however, believed the macroeconomic fundamentals of the economy were "sound".
Maintaining that several indicators for the January-February, including IIP, exports, imports, PMI manufacturing, had shown immense growth, the MPC said the past data had now become "less relevant" as the near-term outlook due to COVID-19 had turned highly uncertain.
The RBI said inflation had peaked and would likely ease well below the target in the second half of 2020-21. "In the extreme scenario in which we are, however, the easing off of inflation may occur sooner and faster. This outlook offers the scope for taking a calculated risk on current levels of inflation," the RBI said.
In the wake of COVID-19 pandemic, the MPC said several types of activity had come to a standstill with social isolation, supply-disruptions, demand contraction and heightened anxiety. But the panel added the economic outlook was highly uncertain. "Prospects for the Indian economy now hinge around how pervasive and severe COVID-19 turns out to be, and how long it lasts," it concluded.
The central bank believed domestic financial conditions had tightened and could seriously undermine monetary transmission, which otherwise improved in the more recent period.
The MPC agreed that though it's difficult to quantify, it was clear that aggregate demand would weaken significantly soon, impacting the growth prospects for the year as a whole. Thereafter, once the situation starts normalising, domestic demand would need to be stimulated without any loss of time, it concluded.
The RBI had cut benchmark interest rate by 75 basis points to 4.4 per cent to deal with the hardship caused due to the outbreak of COVID-19. The central bank also reduced the cash reserve ratio (CRR) of all banks by 100 basis points to 3 per cent with effect from March 28 for 1 year. While two members (Pami Dua and Chetan Ghate) voted for 50 bps cut, other four members called for 75 bps cut in the key lending repo rate.