The three-year extension granted to the Reserve Bank of India (RBI) Shaktikanta Das is an acknowledgment by the government of its skilful handling of the financial system at a time when the chips are in the economy in the face of the Covid pandemic.

The key message is that the government does not want to rock the boat, preferring continuity of leadership, as the Reserve Bank of India (RBI) embarks on resolving the extraordinary measures related to Covid.

In his latest statement at the MPC meeting, Das, who has been at the helm of the central bank since December 12, 2018, emphasized: “At this critical juncture, our actions must be gradual, calculated and timely. And good telegraph to avoid any needless surprises. .

“We have come to shore after sailing on a very turbulent voyage, and we cannot bear to shake the boat at this crucial point. We must make sure we arrive safely to begin the journey beyond shore…”

Covid woes

Not changing horses halfway is the best course of action, experts feel, as the threat from the pandemic continues to affect lives, livelihoods and the economy.

Since the outbreak of the pandemic in March 2020, Waddas has obligated the Reserve Bank to “battle ready” throughout the year (do whatever it takes to stabilize the financial system), act unconventionally when needed, and be on standby. Watch out for waves of the future.

Reduced repurchase rate

Therefore, to reduce borrowing costs and revive growth prospects, the central bank lowered the repo rate in two stages – from 5.15 percent to 4.40 percent on March 27, 2020, and to 4 percent on May 22, 2020).

The reverse repo rate was also reduced in three phases – from 4.90 percent to 4 percent on March 27, 2020, to 3.75 percent on April 17, 2020, and to 3.35 percent on May 22, 2020 – to absorb excess liquidity from the banking system.

As part of the liquidity measures, the Reserve Bank of India has introduced Targeted Long Term Repurchases (TLTRO) so that banks can withdraw these funds and use them to support cash-starved non-bank financial firms.

To reduce the economic fallout, banks were allowed, among other things, to offer a six-month deferment of installment payments in respect of term loans while relaxing asset classification criteria, deferring interest on working capital facilities, and facilitating working capital financing.

An RBI insider said Das believes in taking all stakeholders into trust, and therefore seeks their feedback before regulatory measures are announced.

During his tenure as governor thus far, there have been no frictions between the Central Bank and North Block. Even if there was, Das (Former Secretary, Department of Revenue and Economic Affairs, Ministry of Finance, Government of India) would not let them appear.

Relations between the government and the Reserve Bank of India

“The reappointment of Governor Shaktikanta Das for a three-year term signals the continuation of monetary policy and gives more stability to the relations between the government and the Reserve Bank of India.

Under Governor Das, the central bank has made great efforts to support the economy during the Covid crisis, with fiscal policy playing a supporting role. “We also view the governor’s reappointment as a vote of confidence in the policy position of the Reserve Bank of India,” said Rahul Bagoria, Chief Economist for India, Barclays Securities (India) Pvt Ltd, and Shreya Soudani, Research Analyst, Barclays Investment Bank, Singapore.

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