RBI slashes benchmark lending rate by 40 basis points

Impact of RBI repo rate cut on borrowers depositors- who should do what

Impact of RBI repo rate cut on borrowers depositors- who should do what

Among other regulatory measures, the Indian central bank hiked the group exposure limit for banks to 30 per cent from 25 per cent.

Global economy contracted severely due to the COVID-19. The governor announced a cut in the repo rate by 40 basis points (bps) to 4 per cent, while the reverse repo rate was simultaneously reduced to 3.35 per cent. Assuming economic activity gets restored in a phased manner especially in the second half of this year, and taking into consideration favorable base effects, it is expected that the combination of fiscal, monetary and administrative measures being now undertaken both by the government and the RBI could create conditions for a gradual revival in activity in the second half of 2021. "The RBI (Reserve Bank of India) will continue to remain vigilant and in battle readiness to use all its instruments and even fashion new ones, as recent experience has demonstrated, to address dynamics of the unknown future".

"In view of extension of lockdown and continuing disruption on account of COVID-19, the moratorium has been extended till August 31".

This means that the total amount of interest across these six months will only be due after the expiry of the deferment period on August 31. He also said that while volatility in global markets may have ebbed "but markets have generally been disconnected from developments in the real economy". This will have a rollover facility to upto one year. The repo rate has dropped from 4.4 per cent to 4 per cent.

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This is the governor's third such presser in the context of COVID-19 related measures in last two months. His first address happened on March 27 and the second on April 17.

Shaktikanta Das also said that the inflation outlook is highly uncertain. He said that there will be a gradual revival of activity and demand by the second half of FY21 and that it is essential to instill confidence at this point of time. He said that the price of vegetables, oilseeds, and milk emerged as pressure points. A ray of hope is also brought in from the normal south-west monsoons this year, added Shaktikanta Das. "Given all these uncertainties, [economic] growth in 2020 to 2021 is estimated to remain in negative territory, with some pickup in growth impulses from [the second half of fiscal] 2020-21 onward".

RBI Governor says India seeing a collapse of demand; electricity, dip in petroleum product consumption; fall in private consumption. This, he said, has taken a toll on fiscal revenues. He said that the world trade is likely to shrink by 13 to 32 per cent in the first quarter. In an off-cycle meeting of the Monetary Policy Committee (MPC), the decision was taken unanimously to cut repo to support growth.

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