MONETARY RESPONSE TO ANY CRISIS WITH REFERENCE TO CURRENT PANDEMIC

Abstract

In 2016, the monetary policy related approach structure moved towards flexible inflation focusing on furthermore, a six-part Monetary Policy Committee (MPC) was comprised for setting the strategy rate. Indian Economy was struggling through the NBFC liquidity crisis and rising bank NPA, suddenly Pandemic has hit the economy badly. It is a big blow to the economy and in response to this sudden crisis RBI has taken various measures to bring back economy on track. This paper is descriptive study of various policy decision taken by RBI to in order to control the damage due to Pandemic. The RBI’ Bi-monthly policy review document is used as reference for various policy measures and its effectiveness in dealing with changes in the various economic indicators. RBI has used all policy measures in dealing with liquidity squeeze due to lockdown. It includes LTRO, TRTO and operation twist. This paper will also discuss the likely impact of these unconventional tools of monetary policy on the RBI’s Balance Sheetsize. The RBI actualizes the financial approach through open market tasks, bank rate strategy, save framework, credit control strategy, moral influence and through numerous different instruments. Utilizing any of these instruments will prompt changes in the loan cost, or the cash flexibly in the economy. Financial approach can be expansionary and contractionary in nature. Expanding cash flexibly and lessening loan costs show an expansionary strategy. The converse of this is a contractionary financial strategy. For example, liquidity is significant for an economy to spike development. To look after liquidity, the RBI is subject to the financial arrangement. By buying securities through open market activities, the RBI presents cash in the framework and lessens the loan cost. _________________________________________________________________________________________________________________ www.trendytechjournals.com 6 Introduction The monetary policy framework in India has evolved over the past few decades in response to financial developments and changing macroeconomic conditions. The operational framework of monetarypolicy has also gone through significant changes with respect to instruments and targeting mechanisms. The preamble of the Reserve Bank of India (RBI) Act, 1934 was also amended in 2016, which now clearly provides the mandate of the RBI. It reads as follows: “to regulate the issue of Bank notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage; to have a modern monetary policy framework to meet the challenge of an increasingly complex economy; to maintain price stability while keeping in mind the objective of growth.” The aim of monetary policy in the initial years of inception of RBI was mainly to maintain the sterling parity, with exchange rate being the nominal anchor ofmonetary policy. Liquidity was regulated through open market operations (OMOs), bank rate and cash reserve ratio (CRR). Soon after independence and through the late 1960s, the role of the central bank was aligned with the planned development process of the nation in accordance with the 5-year plans. Thus, it played a major role in regulating credit availability, employing OMOs, bank rate, and reserve requirement towards this end.