scorecardresearch
Follow Us:
Sunday, August 07, 2022

Rate cut and loan-repayment moratorium: How RBI is trying to reduce pandemic stress

RBI Governor Shaktikanta Das said the growth outlook will depend on the intensity, speed and duration of the coronavirus pandemic, but indicated the growth projections for the year was at risk.

By: Explained Desk | New Delhi |
Updated: March 28, 2020 7:18:13 am
Rate cut and loan-repayment moratorium: How RBI is trying to reduce pandemic stress India coronavirus lockdown: Outside a bank in Prayagraj on March 25, 2020. (PTI Photo)

The RBI’s Monetary Policy Commitee (MPC) on Friday (March 27) reduced the policy repo rate by 75 basis points to 4.4 per cent to help arrest the slide in economic growth in the wake of the COVID-19 outbreak.

Governor Shaktikanta Das said his address was coming amidst “extraordinary circumstances” and that the MPC voted for “sizeable reduction” in repo rate to revive growth and the mitigate the impact of the pandemic outbreak. This comes a day after Finance Minister Nirmala Sitharaman announced a slew of relief measures aimed at the more vulnerable sections of society.

This was the first time that the MPC met outside its bi-monthly meeting calendar. The policy was scheduled to be announced on April 3 earlier.

Relief for companies

Subscriber Only Stories
No victim-blaming, no fetishising of abuse: Darlings shows why we need mo...Premium
How the Indian action spectacular RRR became a smash in AmericaPremium
5 ways in which Samsung could improve the Galaxy Z Flip 4 and Fold 4Premium
Explained: First flight of India’s newest rocket, what it means for...Premium

The RBI governor announced a moratorium on term loans and indicated that deferment of interest payment will not result in asset classification downgrade, a major worry for small and medium businesses that have downed their shutters.

The RBI also allowed lending institutions, banks to defer interest on working capital repayments by 3 months — again a move aimed at addressing the distress among firms as production is down.

The RBI Governor also said banks may reassess the working capital cycle, and that they won’t be treated as NPA. The MPC voted with a 4:2 majority to cut repo rate by 75 basis points to 4.4 per cent.

Macro indicators

The Governor said that growth outlook will depend on the intensity, speed, and duration of the pandemic, but indicated the growth projections for the year was at risk. The MPC refrained from giving growth and inflation projections, given the uncertainty in the situation. But it clearly highlighted downside risks to growth from a prolonged lockdown.

📢 Express Explained is now on Telegram. Click here to join our channel (@ieexplained) and stay updated with the latest

Why did market fall?

Equities climbed off the day’s high after the RBI Governor said that India’s FY20 GDP growth forecast of 5 per cent was now at risk.

The RBI Governor also indicated that the large sell-offs in markets have intensified pressure. RBI will conduct LTRO (long term repo operations) of up to 3-year tenure of up to Rs 1 lakh crore at a floating rate linked to the policy repo rate. The first auction of Rs 25,000 cr will be conducted later on Friday.

Here’s a quick Coronavirus guide from Express Explained to keep you updated: Are smokers at high risk form coronavirus? | Can Vitamin-C prevent or cure coronavirus infection? | What exactly is community spread of coronavirus? | How long can the Covid-19 virus survive on a surface? | Amid the lockdown, what is allowed, what is prohibited?

TWO IS ALWAYS BETTER | Our two-year subscription package offers you more at less

📣 Join our Telegram channel (The Indian Express) for the latest news and updates

For all the latest Explained News, download Indian Express App.

  • Newsguard
  • The Indian Express website has been rated GREEN for its credibility and trustworthiness by Newsguard, a global service that rates news sources for their journalistic standards.
  • Newsguard
First published on: 27-03-2020 at 11:58:32 am
0 Comment(s) *
* The moderation of comments is automated and not cleared manually by indianexpress.com.

Featured Stories

Advertisement
Advertisement
Advertisement
Advertisement