RBI cut repo rate by 40 bps to help the weakening economy in view of the coronavirus pandemic

Highlights:

  • RBI slashed policy repo rate, Reverse repo rate was also cut by 40 bps.
  • The decision was taken to revive growth and mitigate the impact of the coronavirus pandemic.
  • Customer have to pay a lesser EMI on their Bank Loans.
  • RBI extended the moratorium on payment of loans by another three months till August

Mumbai:

Addressing coronavirus-induced Economic crisis, Reserve Bank of India (RBI) governor Shaktikanta Das on Friday slashed policy repo rate. The rate at which RBI lends short term money to banks by 40 bps to 4 percent from 4.4 percent earlier. Reverse repo rate was also cut by 40 bps to 3.35 percent. One basis point is one-hundredth of a percentage point.

When the bank gets a loan from the Reserve Bank at a lower rate of interest, their cost of fund raising will be reduced. For this reason, they can give cheaper loans to their customers. This means that the interest rates on your home, car or personal loan can be reduced if the repo rate is low.

RBI extended the moratorium on payment of loans by another three months

Besides, in an off-cycle meeting the governor also extended the moratorium on payment of loans by another three months till August to provide much-needed relief to borrowers whose income has been hit due to the coronavirus crisis. In March, the central bank had allowed a three-month moratorium on payment of all term loans due between March 1, 2020, and May 31, 2020.

Accordingly, the repayment schedule and all subsequent due dates, as also the tenor for such loans, were shifted across the board by three months. As a result of this moratorium, individuals’ EMI repayments of loans taken were not deducted from their bank accounts, providing much-needed liquidity.

The RBI governor said that there has been a 3.7 percent increase in food production. Monsoon is also expected to be normal this time. The kharif sowing till May 10 has been 40 per cent higher than the previous year. This will strengthen the food security of the country and food inflation will also be controlled.

The RBI governor further said, ‘The rise in the price of pulses is a matter of concern. Everyone will benefit from agricultural production. According to the WTO, global trade could decline from 13 to 32 per cent. GDP growth is expected to be negative. Monsoon is expected to be normal”.

The RBI governor said, “GDP growth is expected to be in negative territory in 2020-21. The six-member Monetary Policy Committee voted in favor of a 0.40 percent reduction in the interest rate by 5: 1. Demand in India is declining, electricity, petroleum product consumption is declining, private consumption is declining. Private consumption has suffered the most due to the outbreak of Covid-19. Investment demand has been badly affected due to sluggish economic activity amid the outbreak of Corona.

During the press conference, RBI Governor Shaktikanta Das said that due to Corona virus, there has been a big loss to the economy. RBI Governor Shaktikanta Das said that the global economy is moving towards recession and inflation estimates are very uncertain. He said, domestic economic activity has been badly affected by the two-month lockdown.

Economic activity will be affected in the first half of the current financial year : Das

He also added that the top six industrial states, which contribute 60 percent to India’s industrial production, are largely in the red or orange Zone. Das said that economic activity will be affected in the first half of the current financial year due to the decrease in demand and supply disruptions. He said that some improvement in economic activity is expected in the second half of 2020-21. He said, GDP growth is expected to be negative in 2020-21, although there will be some momentum in the second half of 2020-21.

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