A Non-Monetary Policy, Par For The Course

Context: The Reserve Bank of India is refraining from a policy rate cut and is now relying on non-monetary measures to ease the system.  

Challenges to the Policy Rate Cut Monetary Measures:

• High Retail Inflation: The retail inflation in June was 6.09 per cent, higher than the upper band of the RBI’s target.

• Slow Economic Growth.

• Constricted Monetary Space: The Monetary Policy Committee (MPC) doesn’t want to compromise on its medium-term inflation target (4 per cent with a 2 percentage- point band).

Non-Monetary Measures Taken by the RBI: 

• One-time Loan Restructuring Scheme: 

• Converting Debt into Equity: Made it mandatory for banks to treat restructured stressed loans as sub-standard unless there was a change in ownership of the borrowing company.
• Restructuring for Personal loans: affected by COVID under a separate framework.
• Restructuring of Micro, Small and Medium Enterprises (MSMEs) loans has been extended by 3 months till March 2021.

• More Non- Monetary Measures: such as twists, open market operations, reshuffling of banks’ bond portfolio and even direct monetization can be employed the RBI in future.