RBI slashes lending rates and extends moratorium on loan repayment by 3 months

The Reserve Bank of India yesterday cut the repo rate by 40 basis points from 4.4 per cent to 4 per cent, reducing the reverse repo rate at 3.35 per cent to maintain accommodative stance. 

The RBI Governor Shaktikanta Das while addressing the media said that the six-member Monetary Policy Committee voted 5:1 in favour of 40 bps cut in interest rate. The RBI Governor said, measures announced today can be divided into four categories -- to improve functioning of markets, to support exports and imports, to ease financial stress by giving relief on debt servicing and better access to working capital and to ease financial constraints faced by State Governments.

Speaking about impact of COVID-19, Mr Das said, the GDP growth in 2020-21 goes in negative territory. The headline inflation may remain firm in first half of year; ease in the second half, falling below 4 per cent in Q3/Q4 of financial year 20-21. Granting relief to people the RBI extended moratorium on loan repayments by three more months in view of COVID-19 starting from 1st of June to 31st of August, 2020. 

The RBI has announced to extend  15,000 crore rupee line of credit to EXIM Bank. It has relaxed rules governing withdrawal from Consolidated Sinking Fund (CSF)



while at the same time, ensuring depletion of fund balance is done prudently. It will enable states to meet about 45 per cent of redemption of their market borrowings which are due in 2020-21.

 

The RBI Governor said private consumption has seen biggest blow due to COVID-19 outbreak, following investment demand has halted big time impacting the government revenues severely due to slowdown in economic activity. The inflation outlook is highly uncertain with elevated level of inflation in pulses being worrisome and therefore requires review of import duties. The Group Exposure Limit of banks is being increased from 25 to 30 per cent of eligible capital base for enabling the corporates to meet their funding requirements from banks. The increased limit will be applicable up to 30th June, 2021.

 

Amidst this encircling gloom, the apex bank Governor said, agriculture and allied activities have, however, provided a beacon of hope on the back of an increase of 3.7 per cent in food grains production to a new record. India’s foreign exchange reserves too have increased by 9.2 million US dollars during 2020-21 from April 1st onwards. So far, up to May 15th, foreign exchange reserves stand at 487 billion US dollars.