RBI says a combination of fiscal, monetary, and administrative actions will create conditions for the revival of the economy in the second half of FY21

In a major relief to the middle class, the Reserve Bank on Friday extended the moratorium on loan repayments by another three months to August 31, while it has also cut repo rate by 40 basis to 4.0 percent.

It was the first announcement after the Central government unveiled a fiscal and monetary stimulus of worth Rs 21 lakh crore to support the Covid-19 hit economy.

Briefing the media through video conferencing, RBI Governor Shaktikanta Das said the Monetary Policy Committee, after an unscheduled meeting, cut policy repo rate by 40 basis points to 4.0 percent. The RBI Monetary Policy Committee voted unanimously for reduction in the policy repo rate, while voting 5:1 in favour of the quantum of the cut, Shaktikanta Das said.

Consequently, the reverse repo rate now stands reduced to 3.35 percent, while the MSF rate is down to 4.25 percent. To ease the financial stress on people and businesses, Shaktikanta Das said that the RBI has also allowed deferment of repayments of loans and working capital by another three months from June 1 to August 31 due to lockdown extension.

While laying out the economic conditions prevailing in India amid the ongoing coronavirus crisis, the RBI Governor, however, said food inflation may remain under supply side shock, and that the elevated level of inflation in pulses is “worrisome”.

In the wake of the ongoing coronavirus pandemic, RBI has so far announced various liquidity and monetary measures, totaling an economic value worth Rs 8 lakh crore.

RBI has allocated Rs 15,000 crore to EXIM banks to avail US dollar swap facility. This will have a rollover facility to up to one year.

The Central Bank has also another 90-days extension to SIDBI for the 90-day term loan facilities

The RBI Governor said the GDP growth in India in 2020-21 is estimated to remain in the negative territory.

“India is seeing a collapse of demand. Private consumption has seen the biggest blow due to the Covid-19 outbreak, investment demand has halted. The government revenues have been impacted severely due to slowdown in economic activity,” the RBI Governor said.

However, he said that the combination of fiscal, monetary, and administrative actions will create conditions for the revival of the economy in the second half of FY21.

India's benchmark 10-year bond yield dropped as much as 18 basis points to 5.8 percent immediately after the rate cut was announced.