RBI cuts repo rate by 40 bps to 4%, extends loan moratorium till August 31

In a bid to address the economic concerns due to COVID-19, the Reserve Bank of India (RBI) Governor Shaktikanta Das today cut the repo rate by 40 bps to 4% and also extended the moratorium on term loans till August 31. The Monetary Policy Committee (MPC) voted in the ratio of 5:1 in favour of rate cut.

Just after the lockdown was announced, the RBI Governor had slashed the repo rates by 75 basis points and also announced a three months moratorium on term loans. In the month of April, the RBI further slashed the reverse repo rate by 25 basis points to 3.75%.  Last week the Finance Minister had announced the ₹20 lakh crore Atmanirbhar Bharat economic package in five tranches.

Highlights

•  Interest Rates: MPC maintains an accommodative stance. The repo rate reduced by 40 basis points from 4.4 per cent to 4.0 per cent. Consequently, the Marginal Standing Facility (MSF) rate and the Bank rate stand reduced to 4.25% from 4.65%. The reverse repo rate stands reduced to 3.35% from 3.75%.
• Inflation: The MPC is of the view that headline inflation may remain firm in the first half of 2020-21, but should ease in the second half, aided also by favourable base effects. By Q3 and Q4 of FY20-21, it is expected to fall below target.
• Refinancing Facility for Small Industries Development Bank of India (SIDBI): The RBI had earlier announced a special refinance facility of ₹15,000 crores to SIDBI at RBI’s policy repo rate for a period of 90 days for on-lending/refinancing. In order to provide greater flexibility to SIDBI, it has been decided to roll over the facility at the end of the 90th day for another period of 90 days.
• Measures to Support Exports and Imports
  • Maximum permissible period of pre-shipment and post-shipment export credit sanctioned by banks increased to 15 months from 1 year, for disbursements made up to July 31, 2020.
  • RBI extends a line of credit of ₹15,000 crores to the EXIM Bank for a period of 90 days (with rollover up to one year) so as to enable it to avail a US dollar swap facility.
  • The time period for completion of outward remittances against normal imports (i.e. excluding import of gold/diamonds and precious stones/jewellery) into India has been extended to twelve months from the date of shipment for such imports made on or before July 31, 2020.
• Loan Moratorium period extended by another 3 months – June 1 to August 31, 2020.
• The group exposure limit of banks is being increased from 25 per cent to 30 per cent of eligible capital base, till June 30, 2020.