On Friday 22nd May 2020, the RBI Governor Shaktikanta Das announced several monetary to revive the economy due to the pandemic of COVID-19.
Here are the key highlights of the announcements:
- Cut in repo rate: RBI Governor Shaktikanta Das announces a cut in the repo rate by 40 basis points (bps) to 4% from the existing 4.4%, while the reverse repo rate was reduced simultaneously to 3.35% from existing 3.75%.
- Extend term loan moratorium for 3 months from 1st June to 31st August: RBI Governor announced today, extended the loan moratorium by another 3 months till 31st August 2020 to help borrowers. In March RBI had already announced a 3 months moratorium on payments of all term loans due among 1st March 2020 to 31st May 2020.
- Inflation: RBI Governor said that “The Monetary Policy Committee assessed that inflation outlook is highly uncertain.” He also said that the “headline inflation will remain firm in the first half of FY 2020-21 but will ease in the second half.” In also addition Das said that “The Q3 and Q4 of the financial year, it is expected that headline inflation will fall below the target of 4% and the macroeconomic impact of the COVID-19 pandemic is turning out to be more severe than initially anticipated.”
- An estimate of GDP: Shaktikanta Das said that” India’s GDP growth is estimated to be in negative territory in FY 2020-21, and two-month-long corona-virus lockdown has severely affected the revenues.” Dass also said that “Consumer durable production reduced 33% in March. Service sector contracted passenger and commercial vehicle sales, domestic air passenger traffic, and foreign tourist arrivals also slumped in March. The GDP growth will pick up in the second half of FY 2020-21.”
- Forex: India’s foreign exchange reserves have increased by US $ 9.2 billion in 2020-21 (from 1st April to 15th May) to US $ 487 billion.
- EXIM Banks: RBI allocates ₹ 15000 crore to EXIM banks to avail US dollar swap facility.
- Voluntary Retention Route for FPIs (Foreign Portfolio Investors): RBI announced a voluntary retention route for FPIs and allowed the extension of 3 months to meet 75% utilization of investment limits. RBI Governor Shaktikanta Das said that “It has been decided that an additional three months will be allowed to FPIs to fulfill this requirement. Detailed guidelines on this matter will be issued separately.”