RBI cuts repo rate by 40 bps; extends loan moratorium till August

Darnell Taylor
May 22, 2020

The monetary policy committee (MPC) also made a decision to continue with the accommodative stance as long as it is necessary to revive growth and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target. The reverse repo rate has been reduced to 3.35 per cent. RBI governor Shaktikanta Das says an off-cycle meeting of the monetary policy committee has been done.

RBI Governor Shaktikanta Das addressed a press conference on Friday at 10 am.

As per media reports the RBI governor is expected to announce an extension of the loan moratorium for a few more months following the extension of the nationwide lockdown till May 31.

In a big relief to the corporate sector, the Reserve Bank of India allowed a three-month extension of the moratorium on payment of instalment concerning all term loans outstanding on March 1, 2020. As a result of this moratorium, individuals' EMI repayments of loans taken were not deducted from their bank accounts, providing much-needed liquidity. This has been extended till August 31 now.

Shaktikanta Das also said that the inflation outlook is highly uncertain.

Headline inflation, he said, "may remain firm in the first half" of this financial year, but should ease in the second half, falling below 4%. The medium-term target for consumer price index (CPI) inflation stood at 4 percent. Demand for fuel has plunged.

However, agriculture and allied activities have given a beacon of hope for the country, he said.

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The Reserve Bank on India (RBI) on Friday said India's gross domestic product (GDP) growth will be in negative territory in 2020-21 as the outbreak of coronavirus has disrupted economic activities.

Speaking on the condition of the economy, the governor said that there has been a collapse in demand in both urban and rural demand since March 2020.

This is the third presser by the RBI Governor after the COVID-19 lockdown came into place. These relaxations to states will release an additional amount of about Rs 13,300 crore.

RBI has hiked the group exposure limit for banks to 30 percent from 25 percent.

In its address, Das said that "the global economy is inexorably headed into a recession".

Anuj Puri, Chairman - ANAROCK Property Consultants, said, the RBI's repo rate cut is a welcome move. The reverse repo rate now stands adjusted at 3.35 per cent. If inflation trajectory evolves as expected, space will open up for more rate cuts.

The latest rate cut comes on the same day that India recorded its highest single-day rise in COVID-19 cases so far, with 6,088 new infections.

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