From rate cut to moratorium extension: Top announcements by RBI Governor Shaktikanta Das

RBI RBI(Reserve Bank of India) Governor Shaktikanta Das on Friday addressed his third press conference regarding the coronavirus (COVID-19) related measures. The governor announced a cut in the repo rate by 40 basis points (bps) to 4 percent, while the reverse repo rate was simultaneously reduced to 3.35 percent.

Prior to this meeting, on March 27 and April 17, Das held two presses, where the central bank lowered the repo rate to 4.4 percent and the reverse repo rate to 3.75 percent.

In his address to the media, the governor of the RBI said that the Monetary Policy Committee ( MPC) had held an off-cycle meeting for the last three days. He said that in favor of a 40 bps rate cut, the MPC voted 5:1.

The MPC has also agreed to continue the accommodative stance as long as it is appropriate to revive growth and mitigate the effect of COVID-19 on Dec while ensuring that inflation remains within the aim, “read the monetary policy statement of the central bank.”

Das said there has been a collapse in demand since March in both urban and rural areas. This has taken a toll on fiscal revenues, he said. The governor said that COVID-19’s biggest blow came from a slump in private demand, with the production of consumer durables falling by 33 percent in March.

In his presser, Shaktikanta Das said that some hope was given to the country by agriculture and allied activities and that a ray of hope was brought in this year from the usual south-west monsoons.

Speaking about food inflation, the governor of the RBI said that food inflation, which had eased in February and March from the January high, has now risen to 8.6% in April. He said the price of vegetables, oilseeds, and milk had emerged as points of strain.

The governor said the MPC expects that the headline inflation rate will remain intact in the first half of 2020, but will fall below the 4 percent goal by the third quarter and fourth quarter. He said GDP growth will stay in negative territory, with some gains going up in the second half of the year. “In the second half of 2020-2021, simultaneous political, monetary, and administrative steps will establish the conditions for a gradual revival of activity.”

Das said that the monetary policy transmission has improved and added that improvement in passing a lower rate to the borrowers has been noticed across various segments.

Coming to the moratorium, the RBI governor said that the loan moratorium will be extended by three months till August 31, making it a six-month moratorium.

For the MSME market, Das said that a further 90-day extension of the 90-day term loan facility will be provided in order to provide greater flexibility for SIDBI. This, he said, will provide the MSME sector with additional liquidity support.

The governor of the RBI said that the RBI was prepared to use all its resources to resolve the uncertain future concerns.

Among other regulatory steps, from 25%, the Indian central bank increased the group exposure cap for banks to 30%. In June 2019, the RBI set the 25 percent limit and restricted the exposure of lenders to a single party at 20 percent. The governor of the RBI said that this move was made in view of the current situation due to the outbreak of COVID-19.

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