RBI reduces repo rate

Mumbai: – Shashikant Das, the Governor of the Reserve Bank of India (RBI), announced a reduction in the repo rate to 4%, saying that the Gross Domestic Product (GDP) has been severely hit because of reduced domestic demand and the drastic fall in exports. He also announced moratorium for the next three months, bringing major relief to the borrowers. Moreover, to provide an impetus for exports, he announced an extension of the export financing period to 15 months. 

This is the third announcement, since the onset of the Coronavirus crisis, made by RBI Governor Das in an effort to provide an impetus to the Indian economy. The bi-monthly credit policy assessment meeting of the RBI also was preponed, and the RBI Governor announced the decisions taken during the meeting. Two important announcements for increasing the liquidity in the hands of the banking sector have been made during press conferences in the past. Repo rate had been reduced by 0.75%. RBI also paid attention that the liquidity will increase with the banks by lowering the reverse repo rates, allowing them to disburse more loans. The RBI decisions were expected to increase the liquidity by nearly ₹ 5 trillion.

The RBI reduced the repo rate once again by 0.40%. This brings the repo rate to the level of 4%. The repo rate is the interest rate charged by the RBI while providing loans to the banks. If the banks decide to pass on this benefit of reduced repo rate to their customers, the interest cost for housing and vehicle can become cheaper. This can also reduce the EMI load on the customers. Another reason for this decision is that the reduction in the interest rates will also, in turn, provide an impetus to the housing and vehicle sector because of the increased demand. RBI has also allowed the banks to provide a moratorium of another three months to their borrowers. Therefore, the borrowers can be relieved of the EMI burden for another three months viz, June July and August. RBI had issued similar permission for the months of March, April and May.

Governor Das expressed concerns over the fall in the GDP due to the Coronavirus crisis. Das expressed a fear that the growth rate, for fiscal 2020-21, could become negative. It is expected that the rate of inflation will remain high for the first six months, and thereafter, it will slowly decline. The inflation index for food stuff had reduced in February and March. But now, it has reached 8%. Governor Das said this is because of the increased rates of vegetables, oilseeds and milk.

Governor Das informed ‘This year there could be a decline of 32% in trade. The urban, as well as the rural demand, has drastically fallen in the country. This has adversely affected government revenues. Demand for consumer goods has thinned out. There has been a fall of 33% recorded in demand for consumer items.’ Das said that there is one ray of hope from the agricultural sector as the southwestern monsoon is supposedly normal.

Meanwhile, the RBI extended the limit for pre and post-shipment credit for export, from 12 months to 15 months because of encouraging exporters. RBI has also provided a loan of ₹ 150 billion for USD swap facility to the EXIM Bank.

Leave a Reply

Your email address will not be published.