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RBI Slashes Repo Rate By 40 bps, Extends Loan Moratorium By 3 Months

Mumbai: In a recent development, Reserve Bank of India (RBI) on Friday reduced the repo rate from 40 basis points to 4 per cent and extended the loan repayment moratorium for three months to 31 August.

RBI Governor Shaktikanta Das said that as a result, the reverse repo rate is 3.35 per cent. The six-member Monetary Policy Committee (MPC) voted 5: 1 in favour of the decision. Repo rate is the rate at which a country’s central bank lends money to commercial banks, and the reverse repo rate is the rate at which it borrows from them.

GDP growth is expected to be in negative territory in the current fiscal year due to the COVID-19 crisis, with urban and rural demand declining since March.

A gradual revival of economic activity and demand is expected from the second half (October 2020 to March 2021), Das said, adding that the central bank is ready to use all its tools to address the dynamics of an unknown future.

The Governor said that to enable corporates to meet their financing requirements, the group risk limit of banks is being raised to 25 to 30 per cent of the eligible capital base. The increased limit will remain in force until June 30, 2021.

Das said that food inflation in February and March had come down from the peak of January 2020, which has now increased to 8.6 per cent in April.

However, agriculture and allied activities have provided a ray of hope for the country with a general southwest monsoon forecast.

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