Amid lockdowns and global slowdown adversely impacting the economic activity, the RBI on Thursday expressed hope that recent monetary and fiscal measures will mitigate the impact of COVID-19 on domestic demand and spur growth once the normalcy is restored.

Observing that it was difficult to make growth projections at this point of time, the Reserve Bank in its Monetary Policy Report said the lockdown following the outbreak of COVID-19 and expected contraction in global outlook would weigh heavily on the growth outlook.

It said prior to the outbreak, the outlook for growth for 2020-21 was looking up. The RBI noted that the bumper rabi harvest and higher food prices during 2019-20 provided conducive conditions for the strengthening of rural demand, the transmission of past reductions in the policy rate to bank lending rates has been improving, and reductions in the tax rates and measures to boost rural and infrastructurespending were directed at boosting domestic demand more generally.

“The COVID-19 pandemic has drastically altered this outlook,” the report said, and added the global economy is expected to slump into recession in 2020, as post-COVID projections indicate.

The RBI added the sharp reduction in international crude oil prices, if sustained, could improve the country’s terms of trade, but the gain from this channel is not expected to offset the drag from the shutdown and loss of external demand. “COVID-19, the accompanying lockdowns and the expected contraction in global output in 2020 weigh heavily on the growth outlook. The actual outturn would depend upon the speed with which the outbreak is contained and economic activity returns to normalcy.

“Significant monetary and liquidity measures taken by the RBI and fiscal measures by the government would mitigate the adverse impact on domestic demand and help spur economic activity once normalcy is restored,” it said.