RBI pre­dicts econ­omy to shrink, cuts pol­i­cyrate

RE­LIEF ROADMAP Repo rate slashed to 4%, loan mora­to­rium ex­tended by 3 months up to Aug 31

Hindustan Times (Amritsar) - - Front Page - HT Correspond­ent letters@hin­dus­tan­times.com ■

MUM­BAI/NEWDELHI: The Mone­tary Pol­icy Com­mit­tee of the Re­serve Bank of In­dia (RBI) cut the pol­icy rate by 40 ba­sis points to 4.0% on Fri­day, ac­knowl­edg­ing the ad­verse im­pact on the In­dian econ­omy of the coron­avirus disease (Covid-19) and the lock­down im­posed to com­bat its spread.

A ba­sis point is one-hun­dredth of a per­cent­age point. RBI has so far cut its pol­icy rate by 115 ba­sis points since the cri­sis be­gan to a his­toric low.

RBI gover­nor Shaktikant­a Das also ex­tended the mora­to­rium on pay­ment of term loans (this in­cludes mort­gages or hous­ing loans taken out by in­di­vid­u­als, even per­sonal loans) by an­other three months to Au­gust 31.

The moves are ex­pected to make loans cheaper, and give bor­row­ers a break from monthly loan re­pay­ments at a time when they are fi­nan­cially stressed. The in­ter­est for th­ese six months will be treated as a loan that will have to be paid by the end of this fi­nan­cial year (March 31).

In­ter­est­ingly, Das ad­mit­ted that growth will be in “neg­a­tive ter­ri­tory” this year, the first time any­one in the govern­ment or the cen­tral bank has ad­mit­ted that In­dia’s gross do­mes­tic prod­uct (GDP) will shrink this year.

Chief eco­nomic ad­vi­sor Kr­ish­na­murthy Subra­ma­nian has main­tained that GDP growth will be 1-2% this year and the In­ter­na­tional Mone­tary Fund pre­dicted, on April 14, that In­dia would grow by 1.9%. Gold­man Sachs on Sun­day said it ex­pected In­dia’s econ­omy to con­tract 45% on an an­nu­alised ba­sis in the quar­ter end­ing June, and by 5% in the fi­nan­cial year. “The end-May 2020 re­lease

"The macroe­co­nomic im­pact of the pan­demic is turn­ing out to be more se­vere than ini­tially an­tic­i­pated... GDP growth in 2020-21 is es­ti­mated to re­main in neg­a­tive ter­ri­tory, with some pick-up in growth im­pulses from sec­ond half of 2020-21." SHAKTIKANT­A DAS, RBI gover­nor

of NSO [Na­tional Sta­tis­ti­cal Of­fice] on na­tional in­come should pro­vide greater clar­ity, en­abling more spe­cific pro­jec­tions of GDP growth in terms of both mag­ni­tude and di­rec­tion,” Das said.

Das an­nounced the cut, and other mea­sures aimed at keep­ing “fi­nan­cial mar­kets work­ing, en­sur­ing ac­cess to funds to ev­ery­one, and pre­serv­ing fi­nan­cial sta­bil­ity” in a dig­i­tal video ad­dress on Fri­day, his third since the lock­down be­gan on March 25.

Stock-mar­ket in­vestors weren’t im­pressed but bonds ral­lied. The Bom­bay Stock Ex­change’s bench­mark Sen­sex fell 0.84% to 30,672.59 points at the close of trad­ing.The yield on the most-traded 2029 bonds dropped seven ba­sis points to 5.96% at the close af­ter fall­ing more than 15 points in­tra­day, while that on the new 10-year notes slid three ba­sis points, Bloomberg re­ported. Bond prices and yields move in op­po­site direc­tions. The ru­pee fell 0.5% to 75.9650 per dol­lar.

Das said that the econ­omy has been hit hard by a col­lapse in de­mand and dis­rup­tion in sup­ply. Pri­vate con­sump­tion has fallen sharply, he added. But In­dia’s for­eign ex­change re­serves re­main $487 bil­lion, the gover­nor said — an in­di­ca­tion that the coun­try is un­likely to face a cri­sis of the na­ture it did in 1991 when this was down sharply and barely ad­e­quate to fund a few days of imports. The cur­rent re­serve is ad­e­quate to fund a year of imports, Das said.

In­dia’s cen­tral bank has pre­vi­ously an­nounced mea­sures to tackle the eco­nomic cri­sis re­sult­ing from the pan­demic (and the lock­down) on March 27 and April 17. Ac­cord­ing to the govern­ment, around ~8.01 lakh crore crore of the ~20 lakh crore At­manirb­har Bharat Ab­hiyan (Self-Re­liant In­dia Cam­paign) an­nounced by the govern­ment through last week is ac­counted for by mone­tary mea­sures of the RBI.

On Thurs­day, the cen­tral bank an­nounced mea­sures aimed at im­prov­ing the func­tion­ing of mar­kets, to sup­port ex­ports and imports (the first is down by 60% in April and the sec­ond by 58%, the gover­nor pointed out), to ease fi­nan­cial stress, and to help state govern­ments fi­nan­cially. Th­ese in­clude ex­emp­tions from bor­row­ers be­ing clas­si­fied as de­fault­ers and the loans as non-per­form­ing as­sets for an­other three months, and an ex­ten­sion of the time­line for res­o­lu­tion of bad loans.

The gover­nor ad­mit­ted that in­fla­tion in pulses, milk and veg­etable oil has ac­cel­er­ated, pri­mar­ily be­cause of sup­ply dis­rup­tion, but added that the mone­tary pol­icy com­mit­tee ex­pects this to ease in a few months.

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