RBI Governor Shaktikanta Das announces repo rate cut of 40 bps to boost economy

RBI Governor Shaktikanta Das announces repo rate cut of 40 bps to boost economy

The monetary policy committee (MPC) is maintaining an accommodative stance until growth revives, Das also said

Reserve Bank of India Reserve Bank of India

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.

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Published on: May 22, 2020, 10:18 AM IST
Posted by: Manali, May 22, 2020, 10:18 AM IST