Reserve Bank of India’s (RBI) Governor Shaktikanta Das in his third address cut the repo rate by 40 basis points to 4% and also extended the moratorium on all term loans by another 3 months. After the lockdown began, Das had slashed the benchmark interest rate (repo rate) by a massive 75 basis points and also announced a three-month moratorium to be given by banks to provide relief to borrowers whose income has been hit due to the lockdown. The loan moratorium has now been extended till August 31 for 6 months.
Finance Minister Nirmala Sitharaman, who recently announced the ₹20 lakh crore economic package in five tranches, will also hold a review meeting with CEOs of public sector banks (PSBs) today to discuss various issues, including loan disbursement, as part of efforts to revive the economy reeling under the COVID-19 impact.
RBI made its views on the Indian economy during coronavirus where it said – “Even though the lockdown may be lifted by end-May with some restrictions, economic activity even in Q2 may remain subdued due to social distancing measures and the temporary shortage of labour. Recovery in economic activity is expected to begin in Q3 and gain momentum in Q4 as supply lines are gradually restored to normalcy and demand gradually revives."
Further talking about inflation, it said - "The inflation outlook is highly uncertain. As supply lines get restored in the coming months with gradual relaxations in the lockdown, the unusual spike in food inflation in April is expected to moderate. The forecast of normal monsoon also portends well for food inflation".
Following announcements were also made -
• Group exposure limit for lenders to corporates raised to 30% from 25%.
• RBI has increased export credit period to 15 months from 1 year.
• Monetary policy transmission has continued to improve
• RBI will extend ₹15,000 crore line of credit to EXIM Bank
• Loan moratorium extended by another 3 months till August 31.
• Government 10-year bond yields slumped 15 basis points after the repo rate cut.
• India's foreign exchange reserves have increased by 9.2 billion during 2020-21 from 1st April onwards. So far, up to 15th May, foreign exchange reserves stand at 487 billion USD.
• India seeing a collapse of demand; electricity, dip in petroleum product consumption; fall in private consumption
• Govt revenues have been impacted severely due to slowdown in economic activity amid COVID-19 outbreak
Further, as trying to be proactive it said the impact of coronavirus turning out to be more than expected-
• GDP growth expected to remain in the negative category
• Inflation to remain firm in the first half of 2020 but ease later on.
• A ray of hope comes from the forecast of normal monsoons
• MPC, which met off-cycle, voted in the ratio of 5:1 in favour of the repo rate cut
• RBI MPC cuts repo rate cut by 40 basis points from 4.4 % to 4%. The reverse repo rate stands reduced to 3.35%.
• Stock markets are flat ahead of the RBI press conference.
• The RBI cut interest rates by a sharper-than-expected 75 basis points in late March. Markets and economists now expecting at least another 75-100 basis points cuts in the remainder of this fiscal year.
• In today's press conference RBI Governor may again announce new measures to ease liquidity pressure in the banking system and to boost the economy from the coronavirus shock.