RBI Cuts Repo Rate By 40 Bps To 4%

Saturday, 23 May, 2020

"With a view to facilitating the flow of resources to corporates, it has been decided, as a one-time measure, to increase a bank " s exposure to a group of connected counterparties from 25 per cent to 30 per cent of the eligible capital base of the bank.

He added that SA's economic contraction and slow recovery will keep inflation well below the midpoint of the bank's target range for this year.

"The Covid-19 outbreak has major health, social and economic impacts, presenting challenges in forecasting domestic economic activity".

Das also announced reduction in policy repo rate to 40 basis points to 4 per cent. In April, the bank had predicted a 6.1% fall in GDP.

The governor expects gradual revival in the economy during the second half, after the possible lifting of the lockdown and fiscal/monetary stimulus.

Accordingly, the repayment schedule and all subsequent due dates, as also the tenor for such loans, may be shifted across the board by another three months, he said. Today's trials will be traumatic but together we will triumph, says Das. The bank also extended a three-month debt moratorium it had offered to small and medium-sized businesses by another 90 days. The loan moratorium will be extended till August 31, says RBI governor Shaktikanta Das. The EMI payments will restart only once the moratorium time period expires on August 31. This will have a rollover facility to upto one year.

Modi has said the measures are equivalent to about 10% of the annual output of India's economy, though some analysts suggest that the real value is much lower.

"RBI's Monetary Policy Committee met again from May 20-22". He added that an improvement in passing on a lower rate to borrowers has been noticed across various business segments. Implicit in this decision is a statement that has a bearing on the government's fiscal choices: this is not the time to worry about inflation, but to try and salvage growth from rubble, to which Covid-19 and the lockdown have reduced swathes of the economy. The first cut, in March, was by 100 basis points, and this was followed in April with another 100 basis point cut during an emergency meeting of the Monetary Policy Committee (MPC) meeting in the wake of the pandemic.

The SARB will have felt they had leeway to cut by a deeper 50 basis points as they expect inflation to be "well contained over the medium-term", remaining close to the midpoint in 2021 and 2022.

Governor Lesetja Kganyago announced that the rate was now 3.75%.

The MPC expected the high inflation rate to be short-lived, expecting it to fall below 4 per cent in the second half of the current financial year. "Going forward, these will have a salutary effect on food price pressure", said Das.

Agriculture and allied activities have given a beacon of hope for the country, said the RBI governor.

Das said that there is a collapse in demand in both urban and rural areas since March.

"Monetary policy appears to play for the short term right now, while fiscal policy appears to be playing for the long term", Bhanumurthy said, calling it a "role reversal".

Kganyago said that the Reserve Bank's modelling shows there is room for two more cuts of 25 basis points in the remaining two quarters of the year. Consequently, the reverse repo rate was cut to 3.35 per cent from 3.75 per cent.