IAS Gyan

Daily News Analysis

RBI at end of rate-cut cycle, fiscal steps must for recovery

22nd August, 2020 Economy

Context: The Reserve Bank is at the end of its rate-cut cycle as inflation is unlikely to decline materially from the current level and the onus of economic recovery has now shifted to the government.


  • The Reserve Bank of India (RBI) had cut rates by 1.15% in two moves since the onset of the pandemic in March this year in order to push economic growth, but surprised many by holding rates at the August review as inflation overshot its target.


  • The economists said they feel inflation — which came at 6.9% for July — could be sticky because their estimates show the large procurement by the government may have resulted in 0.35-0.40% upward impact.
  • The supply chain disruptions are showing no signs of abating and have played a spoilsport across several states.

Way forward:

  • Fiscal policy should play a decisive role, if we have to nurture any hopes of a fast-paced recovery.

Reserve bank of India

  • The Reserve Bank of India(RBI) is India's central bank, which controls the issue and supply of the Indian rupee. RBI is the regulator of the entire Banking in India.
  • RBI plays an important part in the Development Strategy of the Government of India.
  • RBI was set up in 1935 under the Reserve Bank of India Act, 1934.
  • Headquarters Mumbai, Maharashtra, India

Reference: https://www.thehindu.com/business/Economy/rbi-at-end-of-rate-cut-cycle-fiscal-steps-must-for-recovery/article32416361.ece#:~:text=The%20Reserve%20Bank%20is%20at,government%2C%20economists%20at%20SBI%20said.