Friday, 05 June, 2020


India central bank slashes rates, warns of contraction

Shaktikanta Das RBI Press Meet Today LIVE: Repo Rate Reduced by 40 Basis Points, GDP Growth to Remain in Negative Territory, Moratorium Extended For 3 Months Again
Conrad Doyle | 22 May, 2020, 14:41

"Reverse repo rate stands reduced to 3.35%", Shaktikanta said. "RBI MPC voted 5-1 for a 40 bps repo rate cut to 4%", he added.

File image of RBI governor Shaktikanta Das.

With the lockdown being extended till May 31, the Reserve Bank of India has extended the moratorium of installments of term loans by another three months till August 31, 2020. As a result of this moratorium, individuals' EMI repayments of loans taken were not deducted from their bank accounts, providing much-needed liquidity. It is being speculated that with the extension of the lockdown till May 31, the moratorium will be extended for a period of another three months. The key interest rate was slashed by 40 basis points to four percent, making it the lowest level since 2000.

The RBI governor said the inflation outlook is highly uncertain due to the outbreak of the COVID-19 pandemic and expressed concern over elevated prices of pulses.

"These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth", Das also said.

This, the Governor attributed to current global demand-supply balance, low worldwide crude oil prices, soft global prices of metals and other industrial raw materials, which are likely to keep input costs low for domestic firms, deficient demand and volatility in financial markets.

RBI Governor says India seeing a collapse of demand; electricity, dip in petroleum product consumption; fall in private consumption.

The GDP growth in 2020-21 will remain in the negative, he said.

Shaktikanta Das echoed the views of several global research reports that estimated a negative growth in India's GDP.

"It has been chose to relax rules governing withdrawal from Consolidated Sinking Fund (CSF) while at the same time, ensuring depletion of the fund balance is done prudently". These relaxations to states will release an additional amount of about Rs 13,300 crore. Further, bank exposure to corporates has been raised to 30 per cent of the group's net worth from the current limit of 25 per cent, a move that will allow lenders to give larger loans to companies.

"Going forward, we will continue to be vigilant and we will take whatever measures are necessary to meet the Covid-related challenges which are ahead of us", Das said.

Anuj Puri, Chairman - ANAROCK Property Consultants, said, the RBI's repo rate cut is a welcome move.

The bank had cut the repo rate by 75 basis points in March as fears grew over the spread of the virus in the country of 1.3 billion people. If inflation trajectory evolves as expected, space will open up for more rate cuts.

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