The three-year term extension given to Reserve Bank of India (RBI) Shaktikanta Das is an acknowledgement by the government of his deft handling of the financial system at a time when the chips were down in the economy in the face of the Covid pandemic.

The underlying message is that the government does not want to rock the boat, preferring leadership continuity, as RBI embarks on unwinding of the extraordinary Covid-related measures.

In his recent statement at the monetary policy committee meeting, Das, who has been at the helm of the central bank since December 12, 2018, emphasised that: “At this critical juncture, our actions have to be gradual, calibrated, well-timed and well-telegraphed to avoid any undue surprises.

“We are reaching the shore after sailing through a very turbulent journey, and we cannot afford to rock the boat at this crucial stage. We must ensure that we reach safely to begin the journey beyond the shore…”

Covid woes

Not changing horses in mid-stream is the best course of action, feel experts, as the threat from the pandemic to life, livelihood and economy continues.

Since the outbreak of the pandemic in March 2020, the affable Das has committed the Reserve Bank to ‘battle readiness’ throughout the year (do whatever it takes to stabilise the financial system), to go unconventional as and when needed, and to be on guard against future waves.

Slashed repo rate

So, to lower borrowing costs and revive growth prospects, the central bank slashed the policy repo rate in two stages – from 5.15 per cent to 4.40 per cent on March 27, 2020, and to 4 per cent on May 22, 2020).

The reverse repo rate was also cut in three stages – from 4.90 per to 4 per cent on March 27, 2020, to 3.75 per cent on April 17, 2020, and to 3.35 per cent on May 22, 2020 – to absorb surplus liquidity from the banking system.

As part of liquidity measures, the RBI introduced targeted long-term repo operations (TLTRO) so that banks could draw these funds and use them to support liquidity starved NBFCs.

To minimise economic fallout, banks were allowed, among others, to offer a moratorium of six months on payment of instalments with respect to term loans with relaxation in asset classification norms, defer interest on working capital facilities, and ease working capital financing.

Das has believes in taking all stakeholders into confidence and, hence, seeks their feedback before announcing regulatory measures, said an RBI insider.

During his tenure as Governor so far, there have been no frictions between the central bank and North Block. Even if there were, Das (former Secretary, Department of Revenue and Department of Economic Affairs, Ministry of Finance, Government of India) did not allow them to bubble up.

Government-RBI relations

“The reappointment of Governor Shaktikanta Das for a three-year term signals continuity of monetary policy and gives greater stability to government-RBI relations.

“Under Governor Das, the central bank has done the heavy lifting to support the economy through the Covid crisis, with fiscal policy playing a supportive role. We also view the Governor’s reappointment as a vote of confidence in the RBI’s policy stance,” said Rahul Bajoria, Chief India Economist, Barclays Securities (India) Pvt Ltd, and Shreya Sodhani, Research Analyst, Barclays Investment Bank, Singapore.

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