RBI slashes rates again to soften virus impact

Extends moratorium on loan repayment till August 31

RBI slashes rates again to soften virus impact

Mumbai, May 22

The Reserve Bank today unexpectedly slashed benchmark interest rates to their lowest levels since 2000 and extended the moratorium on repayment of loans for three months to ramp up support for the economy which is likely to contract for the first time in over four decades. 

EMIs set to fall

  • Repo rate cut by 40 basis points to 4%—now stands at lowest since 2000
  • On March 27 as well, RBI had cut interest rates by 75 basis points
  • The benchmark rates decide the interest on home, auto and other loans

The central bank, which advanced the monetary policy committee (MPC) meeting for the second time since March, extended the three-month moratorium on loan repayments, from June 1 to August 31 and raised the limit on banks’ group exposure to companies.

It also increased credit for pre and post-shipment of exports from 1 year to 15 months and gave additional three months to foreign portfolio investors to meet investment needs. The benchmark repurchase (repo) rate was cut by 40 basis points to 4 per cent, the lowest since the benchmark came into being in 2000, Governor Shaktikanta Das said.

Consequently, the reverse repo rate was cut to 3.35 per cent from 3.75 per cent.

The benchmark rates decide the interest on home, auto and other loans. They also dictate interest rates on savings deposits, which are likely to fall in tandem. The Governor said the MPC had voted to maintain its accommodative stance, implying more rate cuts in the future if the need arises.

GDP expected to shrink

New Delhi: Painting a gloomy picture, the RBI said the impact of Covid-19 was more severe than anticipated and the GDP growth during 2020-21 was likely to remain in the negative.

In its first official forecast for economic growth, the central bank said the gross domestic product (GDP) is likely to contract in FY21 (April 2020 to March 2021) as a fallout of the coronavirus and ensuing lockdown. Even before the coronavirus outbreak, the Indian economy was experiencing a slowdown, with GDP growth declining to a projected 4.9 per cent in 2019-20 fiscal, its slowest pace in the last decade.

The RBI said beyond the destruction of economic and financial activity, livelihood and health had been severely affected. Das said the combined impact of demand compression and supply disruptions will depress economic activity in the first half of the year, with some pick-up in growth impulses being seen in H2-2021 onwards. Supplementing government’s Covid-19 stimulus that mostly comprised of credit lines to small business and farmers, the RBI said it will facilitate the flow of funds at affordable rates and revive animal spirits. Five of the six members of the monetary policy committee, including Das, voted for a 40 bps reduction in policy repo rate, while Chetan Ghate voted for a reduction by 25 bps. — TNS/PTI


More needed: Industry

New Delhi: India Inc on Friday said the RBI’s move to slash key interest rates would provide the much-needed respite to small businesses and also revive demand. Industrialists said more support would be required on an ongoing basis both from the RBI and government to stimulate economic growth amid the pandemic. PTI

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