Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday announced a cut in repo rate by 40 bps to 4 per cent from 4.40 per cent. The reverse repo rate now stands adjusted at 3.35 per cent. Accordingly, the marginal standing facility (MSF) rate and the Bank Rate stand reduced to 4.25 per cent from 4.65 per cent. The monetary policy committee (MPC) also decided 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. "RBI MPC voted 5-1 for a 40 bps repo rate cut to 4%," he added.
"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. "COVID Pandemic has crippled the global economy. We must have faith in India's resilience & come out of all odds," RBI Governor also said. The first address by Shaktikanta Das amid the lockdown was on March 27 and the second was on April 17.
In April, the RBI had unexpectedly cut its key deposit rate to discourage banks from depositing idle funds with it and propel lending and boost the sluggish economy amid the coronavirus crisis. The RBI had cut its reverse repo rate by 25 basis points (bps) to 3.75 per cent. The central bank has infused funds totalling 3.2 per cent of GDP into the economy since the February 2020 monetary policy meeting.
In March, the central bank had allowed a three-month moratorium on payment of all term loans due between March 1 and May 31.
SBI Research had recently said that with the government extending the nationwide lockdown up to May 31, the RBI may extend the moratorium on repayment of loans for three more months. An extended moratorium will imply that companies need not repay loans until August 31, 2020, it stated. That, however, will result in a build-up in interest that companies may not be able to service in September, it said, adding that such accounts will then run the risk of being classified as non-performing loans, according to RBI norms."Thus, the RBI needs to give operational flexibility to banks for a comprehensive restructuring of the existing loans and also a reclassification of 90 day norm," the report noted.