Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday addressed his third press conference regarding the coronavirus (COVID-19) related measures. The governor announced a cut in the repo rate by 40 basis points (bps) to 4 per cent, while the reverse repo rate was simultaneously reduced to 3.35 per cent.
In his address to the media, the RBI governor said that an off-cycle meeting of the monetary policy committee (MPC) was done for the past three days. He said that the MPC voted 5:1 in favour of a 40 bps rate cut.
“MPC also decided to continue with the accommodative stance as long as it is necessary to revive growth and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target,” the central bank’s monetary policy statement read.
Das said that there is a collapse in demand in both urban and rural areas since March. This, he added, has taken a toll on fiscal revenues. The governor said that the biggest blow from COVID-19 came from a slump in the private consumption with consumer durables production slipping by 33 per cent in the month of March.
In his presser, Shaktikanta Das said that the agriculture and allied activities have given some hope for the country he also said that a ray of hope is brought in from the normal south-west monsoons this year.
Speaking about the food inflation, the RBI governor said that the food inflation which had eased from the January peak in February and March has now surged to 8.6 per cent in April. He said that the price of vegetables, oilseeds, and milk emerged as pressure points.
The governor said the MPC is of the view that headline inflation rate in the first half of 2020 will remain intact but by the third quarter and fourth quarter, it may fall below the target of 4 per cent. He said the GDP growth would remain in negative territory, with some pick up in the second half. “Simultaneous fiscal, monetary and administration measures will create conditions for a gradual revival of activity in the second half of 2020-2021.”
Das said that the monetary policy transmission has improved and added that improvement in passing lower rate to the borrowers has been noticed across various segments.
Coming to the moratorium, the RBI governor said that the loan moratorium will be extended by three months till August 31, making it a six-month moratorium.
For the MSME sector, Das said that in order to provide greater flexibility of SIDBI, another 90 days extension for the 90-day term loan facilities will be offered. This he said is going to provide additional liquidity support to the MSME sector.
Das said that the RBI is ready to use all its instruments to address the concerns of the unknown future.
Among other regulatory measures, the Indian central bank hiked the group exposure limit for banks to 30 per cent from 25 per cent. The RBI had set the 25 per cent limit in June 2019 and had capped lenders’ exposure to a single party at 20 per cent. The governor said that considering the present situation due to the outbreak of COVID-19, this change has been made.