In his previous addresses post the COIVD-19 outbreak and lockdown, the RBI governor had announced a series of measures to infuse liquidity into the banking system and support the economy on 27 March and 17 April. Das said the combined impact of demand compression and supply disruption will depress economic activity in the first half of the current fiscal.
Das said that the monetary policy transmission has improved and added that improvement in passing lower rate to the borrowers has been noticed across various segments.
"MPC also made a decision to continue with the accommodative stance as long as it is necessary to revive growth and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target", the central bank's monetary policy statement read. The governor said that the biggest blow from COVID-19 came from a slump in the private consumption with consumer durables production slipping by 33 per cent in the month of March. He also said there is a need to review import duties to moderate prices. The RBI Monetary Policy Committee voted unanimously for a reduction in the policy repo rate, while voted 5:1 in favour of the quantum of the cut, Shaktikanta Das said.
MPC is of the view that headline inflation in first half of 2020 will be stay intact but by Q3 and Q4 it may fall below the target of 4 percent.
RBI has hiked the group exposure limit for banks to 30 percent from 25 percent.
Painting a slightly optimistic picture, Das said the GDP growth might pick pace in the second half due to a combination of "fiscal, monetary, and administrative measures".
RBI governor Shaktikanta Das says a facility of Rs 15,000 crore line of credit for 90 days for United States dollar swap facility will be provided to EXIM Bank.
This is the second straight cut in interest rates in two months.
The RBI supplemented the interest rate cut by extending by three months the permission given to all banks to give a three-month moratorium on payment of monthly instalments on all outstanding loans, providing relief to home and auto buyers as well as real estate sector where construction activities are already at a standstill.
The latest rate cut comes on the same day that India recorded its highest single-day rise in COVID-19 cases so far, with 6,088 new infections. "Home loan interest rates have already gone down substantially over the previous year, and are presently at an all-time low averaging between 7.15 per cent to 7.8 per cent", explained Puri.
Naveen Kulkarni, Chief Investment Officer, Axis Securities, said, "The rate cut announced today will have limited impact in the short term, but it is helpful to revive growth over the longer term". RBI has allowed the accrued interest to be converted into a funded interest term loan, which will be fully repaid during the course of the due year ending March 31, 2021. Moratorium extension was expected, considering the economic activity levels.