Amid coronavirus crisis, RBI extends loan moratorium till August
Addressing the media on Friday, RBI Governor Shaktikanta Das said the central bank has brought down the repo rate by 40 basis points. The rate now stands at 4% from the earlier 4.4%. Consequently, the reverse repo rate was reduced to 3.5%. The central bank has also decided to extend the loan moratorium for another three months till August. Here are more details.
In the wake of the COVID-19 pandemic, Das has been frequently interacting with media. His first address happened on March 27 and the second on April 17. The Indian economy has come to a screeching halt since March 25, when a countrywide lockdown was announced to contain coronavirus spread. Earlier, Union Finance Minister Nirmala Sitharaman unveiled tranches of the Rs. 20 lakh crore package.
Das noted that the domestic economic activity has been severely hit in the last few months, with only the agriculture sector providing a ray of hope. He said six states, that contributed the most to production, are in the red. Demand for fuel has plunged. The GDP growth in 2020-21 will remain in the negative, he said. This announcement wasn't unsurprising.
Painting a slightly optimistic picture, Das said the GDP growth might pick pace in the second half due to a combination of "fiscal, monetary, and administrative measures." In what could play a role in boosting market sentiments, Das declared that India's foreign exchange reserves stood at $487 billion till May 15. It increased by 9.2 billion during 2020-21 from April 1 onwards.
Providing a great relief to borrowers, Das said the moratorium for re-payment of loans, which was earlier imposed for three months, has been extended for another three months till August 31. "This will provide additional liquidity support to the MSME sector," he noted. He added, "RBI is vigilant and ready to do whatever it takes to tackle the unknown future."
One of the four measures taken to mitigate the impact of COVID-19 is improving the functioning of markets and market participants. Supporting exports/imports, giving relief on debt servicing, and easing financial constraints of state governments are the other three.
This address also comes before RBI's monetary policy committee is scheduled to meet from June 3 to June 5. In all likeliness, the committee will announce its second bi-monthly policy of 2020-21 on June 5. Since the monetary policy meeting in February 2020, the central bank has infused funds amounting to 3.2% of the GDP to deal with the liquidity problem.
