RBI on Friday announced a surprise 40 b in an off-cycle policy review. The short-term lending rate now stands at 4 per cent, down from 4.4 per cent earlier.
The reverse repo rate has also been reduced by a similar measure to 3.35 per cent from 3.75 per cent earlier. The central bank maintained its ‘accommodative’ stance.
The decision of the Monetary Policy Committee at a press conference by the Governor of RBI. He said five of six MPC members voted in favour of the rate cut.
The RBI Governor said the MPC members met for three days in an off-cycle meeting, that was otherwise scheduled for June 3-5.
“RBI, which has been proactive in recent times, has risen to the occasion by advancing the policy meeting to cut policy rates by 40 bps. Also, the unequivocal statement that monetary policy will continue to be accommodative till growth revives sends out positive signals,” said VK Vijayakumar- Chief Investment Strategist- Geojit Financial Services.
He said the fact that the central bank has refrained from giving a GDP growth figure is a reflection of the complexity in giving projections with the present growth models.
Overall, the GDP growth for FY21 is seen to be in the negative territory, Das said.
Headline inflation, he said, may stay firm in the first half of the financial year. It is expected to ease below 4 per cent in the third and fourth quarters of FY21, he said.
Amid the COVID disruptions, multiple rating agencies and government organisations have already revised India’s growth rate for the current financial year to near zero.
“A rate cut of 40 bps in line with expectations and so the extension of loan moratorium. The measure to convert the moratorium interest payment into a term loan payable in course of FY21 is the most important announcement. This can reduce NPA, at least in the next 12 month,” said Sujan Hajra, Chief Economist and Executive Director at Anand Rathi Shares & Stock Brokers.
The group exposure limit for lenders to corporate has been raised to 30 per cent from 25 per cent said the Governor. Friday’s was the third presser by the governor in the last two months. The first one was held on March 27 and the second one was on April 17.
The Governor said that the RBI will be vigilant in battle readiness to address dynamics of unknown future and will preserve financial stability.