RBI’s function in maintaining liquidity and promoting economic growth

Why in the News?

• Malhotra noted that RBI Governor Shakti anta Das spoke at the annual banking conclave organized by FICCI and IBA.
• He highlighted RBI’s role in ensuring liquidity and supporting economic growth at a time when:

• Loan growth has fallen to its lowest level since March 2022.
• Private sector investment remains sluggish.
• Global trade tensions (like U.S. tariff hikes on Indian imports) are adding pressure.

RBI’s Role in Economic Growth (Present Context)

Ensuring Liquidity in Banking System

• RBI has maintained ample liquidity to ensure industries (MSME, textiles, footwear, etc.) get credit.
• Loans to industries grew 5.49% (weakest since 2022), showing a slowdown.

Supporting Affected Sectors

• RBI is focusing on sectors that are severely impacted by global conditions and weak demand.

Policy Reforms for Growth

• Reduced repo rate by 200 basis points (bps) to encourage cheaper borrowing.
• Ensuring credit flow to exporters and labor-intensive industries.

Encouraging Investment Cycle

• Called on private companies and corporates to invest confidently and help revive the economy’s momentum.

Tariff Issue (US Tariffs on Indian Goods):

• Background:

• US President Trump announced up to 50% tariffs on imports from India (especially steel, aluminum, and defence-related items).
• Key worry: this may reduce India’s exports and slow GDP growth by about 0.6 percentage points.

• Impact on India:

• RBI expects ‘minimal impact’ if negotiations succeed.
• Export sectors like textiles, footwear, labor-intensive goods could be worst affected.

Steps Taken by RBI to Counter Tariff & Growth Challenges

1. Monetary Easing: Repo rate cut by 200 bps.
2. Liquidity Support: Ensured banks have enough liquidity to lend.
3. Targeted Sectoral Support: Focus on MSME, exporters, labor-intensive industries.

Confidence Building: Urging the private sector to revive investment despite global headwinds.