Shaktikanta Das the Governor of the Reserve Bank of India (RBI) made several announcements during a Press Meet this Friday, 22 May 2020. He announced a reduction in the repo rate to 4 per cent from the existing 4.4 per cent in an unexpected move to support and
stabilize the economy.
That marked the lowest repo rate recorded since 2000. The reduction in the key interest rate will allow banks to lower the EMI burden for their borrowers and ease the strain of their customers. The RBI Governor further extended the loan moratorium which had been imposed at the beginning of the nationwide lockdown by another three months till August.
Key Highlights of the Press Meet
In order to counter the major impact on the economy due to the national lockdown and its subsequent phases, these announcements were made to bring some relief to the failing businesses and stagnant economy.
a. During his address to the media after the government detailed the fiscal and monetary stimulus worth Rs 20.97 lakh crore, the RBI governor stated that the economy is expected to continue being negative in the current financial year due to the COVID-19 outbreak. Mr Das added that headline inflation may remain firm in the first half of the current financial year and only ease in the latter part of the
year.
b. The RBI has announced a reduction in the reverse repo rate to 3.35 per cent from the existing 3.75 per cent.
c. The Monetary Policy Committee has decided to continue with its “accommodative” policy stance, which means that the central bank is ready to ease monetary policy in order to support the financial system.
d. Five members of the Monetary Policy Committee (MPC) voted in favour of rate reduction.
e. The RBI extended the term loan moratorium and also relaxed the interest payment terms to prevent restriction in cash flow for borrowers.
f. The RBI Governor added that the combination of fiscal, monetary, and administrative measures will create conditions that will enable a gradual economic revival, going forward.
g. “The RBI flagged risks of a negative growth print this year while holding back on a point target. They expect disinflationary forces to dominate, suggest they open for further reduction in cuts,” said DBS Bank economist Radhika Rao.
In March, the RBI had slashed the repo rate by 75 bps to stimulate growth and the next month, it unexpectedly lowered the key deposit rate – or reverse repo rate – to 3.75 per cent, in an attempt to discourage commercial banks from gathering funds with it and
spur lending.
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