(Juhi Aishwary, Journalist): The Reserve Bank of India on Friday decided to cut interest rates, increase the moratorium on loan repayments, and allow banks to give more loans to corporate to mitigate the impact of the Covid-19 crisis. Significantly, for the first time in more than four decades, the economy may go through a period of contraction. Highlights of the statement of RBI Governor Shaktikanta Das and the decisions of the Monetary Policy Committee (MPC)
- RBI reduced the repo rate by 0.40 percent to four percent.
- The reverse repo rate was reduced to 3.35 percent.
- The second major reduction in key policy rates in two months.
- RBI convenes MPC meeting ahead of time to take important decisions
- The RBI governor said that the MPC considered the growth scenario to be the most serious risk.
- GDP growth is projected to be negative in FY 2020-21, with some improvement in the second half.
- The top six industrial states that contribute 60 percent to the total industrial production of the country are largely red or orange regions.
- Indicators are pointing to a drop in demand since early March.
- The MPC considered that the economic impact of Covid-19 is more severe than initial estimates.
- Different sectors of the economy are facing severe pressure.
- Economic activity other than agriculture is expected to be weak in the first quarter due to the lockdown.
- Inflation estimates are highly uncertain.
- The moratorium on loan repayment was extended for three months till August 31, 2020.
- Lending institutions are allowed to defer interest on working capital facilities by 31 August.
- RBI extended the remittance period from six months to 12 months on imports made before 31 July.
- RBI extended loan facility of Rs 15,000 crore to Exim Bank.
- Foreign exchange reserves increased by $ 9.2 billion to $ 487 billion in 2020-21 (as of May 15).
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