Reportedly with the fiscal deficit already touching as high as 7 per cent of the GDP, the government has little room increase spending during the economic crisis. It is already running out of options to fund its budget and the bank OF INDIA' target='_blank' title='reserve bank of india-Latest Updates, Photos, Videos are a click away, CLICK NOW'>reserve bank of india (RBI) may need to intervene yet again with additional support, reported Bloomberg.

 

 

According to the report, the central bank may be asked by the administration to buy sovereign bonds directly or boost dividends to help generate additional revenue. The report, quoting Sabyasachi Kar, bank OF INDIA' target='_blank' title='rbi-Latest Updates, Photos, Videos are a click away, CLICK NOW'>rbi chair professor at the National Institute of Public Finance and Policy, said demand creation can only happen if the government spends. Kar told Bloomberg that it would “make sense to go for some form of deficit monetization” right away.

 

 

Most central banks around the world are helping their respective governments fund record fiscal stimulus packages to deal with elevated spending during the coronavirus pandemic. In fact, the case has been same for emerging markets like indonesia as well. In indonesia, the central bank this week agreed to buy bonds worth billions of dollars directly from the government. The Bloomberg report notes that the approach by Indonesia’s central bank could be risky for developing economies, especially the risk of inflation, currency and autonomy of the central bank.

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