The global financial crisis of 2008 had a significant impact on the Indian economy, and the Reserve Bank of India (RBI) responded with a range of monetary policy measures to mitigate its effects. Some of the key measures taken by the RBI are:
- Reduction in Policy Rates: In response to the crisis, the RBI reduced the repo rate (the rate at which it lends to banks) from 9% in 2008 to 4.75% in 2009. The reverse repo rate (the rate at which it borrows from banks) was also reduced to encourage banks to lend more.
- Liquidity Management: The RBI took steps to ensure adequate liquidity in the banking system, including increasing the limit for borrowing under the Liquidity Adjustment Facility (LAF) and providing additional funds to banks through open market operations (OMOs).
- Regulatory Measures: The RBI tightened prudential norms for banks, such as increasing the provisioning requirements for non-performing assets (NPAs) and reducing the exposure limit for banks to certain sectors.
- Exchange Rate Management: The RBI intervened in the foreign exchange market to prevent excessive volatility in the exchange rate, which could have had a negative impact on the economy.
- Special Schemes: The RBI introduced special schemes such as the restructuring of loans for small and medium enterprises and the Agricultural Debt Waiver and Debt Relief Scheme to provide relief to distressed sectors.
These measures helped to stabilize the Indian economy and limit the impact of the global financial crisis. However, the RBI had to balance the need for stimulating growth with the risk of inflation, and therefore, it gradually reversed some of the accommodative policies as the economy recovered. For instance, the RBI increased the policy rates from 2010 onwards to contain inflationary pressures, despite concerns over the impact on growth. Overall, the response of monetary policy in India to the global financial crisis demonstrated the importance of a proactive and flexible approach to managing the economy during times of crisis.