RBI ramps up economic suppor t, extends loan moratorium
The Reserve Bank of India (RBI) on F riday slashed interest ra tes, extended moratorium on loan repayments and allo wed bank s to lend mor e to corporates in an effort to support the economy which is lik ely to con tract f or th e first time in over four decades.
The benc hmark re purchase (repo) ra te was cut b y 40 basis points to 4%, Go vernor Shaktikanta D as said announcing the decisions tak en b y the c entral bank's Monetary P olicy Comm ittee (MPC) tha t met a head of its scheduled meeting in ear ly Ju ne.
Consequently, th e r everse re po rate was r educed to 3 .35% fr om 3.75%. He said the MPC had voted to m aintain its accommodative stance, implying more rate cuts in the future if need arises.
The RBI supplemented the interest rate cut by extending by three months the per mission gi ven to all bank s to give a thr ee-month moratorium on pa yment of monthly in stalments on all outstanding loans, providing relief to home and auto b uyers as well a s real estate sector where construction acti vities ar e alr eady a t a standstill.
The mora torium on interest o n working capital was also extended by three months. Also, interest accumulated for the six-mon th moratorium perio d can be converted into a term loan, Das said.
Further, bank exposur e to corporates has been raised to 30 % of the group's networth from the current limit of 25%, a move that will allow lenders to gi ve larg er loans to companies.
In its fi rst of ficial fo recast fo r economic g rowth, the cen tral bank has said the g ross domestic product (GDP) is likely to contract in FY21 (April 2020 to March 2021).
Das said the inf lation outlook is highly uncer tain due to the outbreak of the COVID-19 pandemic and expr essed concer n o ver elevated prices of pulses.
He also said there is a need to review im port duties to mo derate prices.
Headline inf lation ma y r emain firm in the f irst half of th e y ear and may ease in the second h alf. Inflation may fall below 4% in the third or fourth quarter of the current fis cal, acc ording to the G overnor.