Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday announced a reduction in the repo rate to 4 per cent from the existing 4.4 per cent in a surprise move to support the economy. That marked the second cut in the repo rate - or the key interest rate at which the RBI lends short-term funds to commercial banks - so far this year. The move was aimed at countering the fallout from the ongoing nationwide lockdown to contain the spread of the coronavirus pandemic, which has pushed the economy into a standstill, hurt businesses and landed thousands jobless. In a video conference, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) had voted to maintain its "accommodative" stance. This was the RBI chief's first address to the media after the government detailed the fiscal and monetary stimulus worth Rs 20.97 lakh crore to support the economy.
Here are highlights of what RBI Governor Shaktikanta Das said:
- Have few announcements to make
- COVID-19 macroeconomic impact turning out to be more severe than initially anticipated by Monetary Policy Committee
- COVID-19 has crippled global economy
- It has stalled economic activity across the globe
- Repo rate reduced by 40 basis points
- Now repo rate is 4%, from 4.4% earlier
- Reverse repo rate also stands reduced by 40 basis points (0.40 percentage point) to 3.35%
- Monetary Policy Committee voted 5:1 in favour of rate reduction
- RBI to maintain accommodative stance till economic growth revives
- Moratorium on term loan instalments extended by another three months
- Lending institutions to allow deferment of interest on working capital facilities till August
- Domestic economic activity impacted by lockdown; MPC judged risks to be gravest in growth outlook
- Investment demand has declined
- High frequency indicators point to collapse in demand beginning March
- Acute stress in various sectors
- Top six industrialised states accounting for about 60% of industrial output largely in red or orange zones
- Government revenue has been impacted severely
- Contraction of 27% in capital goods import in March
- Private consumption has seen biggest blow due to COVID-19
- Agriculture activities however have provided hope
- Forecast of normal monsoon offers ray of hope
- Headline inflation may firm in first half of 2020, but ease afterwards
- MPC's forward guidance directional
- Inflation to fall below 4% in Q3, Q4; inflation outlook highly uncertain
- Combination of fiscal, monetary, administrative measures to create conditions for gradual economic revival
- GDP growth in 2020-21 expected to remain in negative territory
- Uncertainties on COVID-19 remain
- ADDITIONAL MEASURES IN FOUR AREAS:
- To Improve Market
- To Support Trade
- To Ease Financial Stress
- To Ease Financial Constraints Faced By State Governments
- Extension in time given to importers for remittances from six months to 12 months, applicable to imports made before July 31
- Line of credit of Rs 15,000 crore for EXIM Bank
- Maximum permissible period of export credit increased to 15 months from 12 months
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