RBI’s rate cut, extension of loan moratorium are positive steps, say developers

Marco Green
May 22, 2020

India GDP growth in 2020-21 is estimated to remain in negative territory.

Food inflation is now under pressure, RBI Governor Shaktikanta Das said that food inflation which had eased from January 2020 peak in February and March has now surged to 8.6 percent in April. As a result of this moratorium, individuals' EMI repayments of loans taken were not deducted from their bank accounts, providing much-needed liquidity.

Shaktikanta Das also said that the inflation outlook is highly uncertain. The biggest blow was to the private consumption slump with consumer durables production falling 33 percent.

The bank had cut the repo rate by 75 basis points in March as fears grew over the spread of the virus in the country of 1.3 billion people.

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, said the RBI governor.

As per media reports the RBI governor is expected to announce an extension of the loan moratorium for a few more months following the extension of the nationwide lockdown till May 31.

"The end-May 2020 release of NSO [National Statistical Office data] on national income would provide greater clarity, enabling more specific projections of GDP growth in terms of both magnitude and direction", the governor said on Friday.

Das said the global economy was headed towards a recession because of coronavirus-induced disruptions to supply chains. The RBI had cut its reverse repo rate by 25 basis points (bps) to 3.75 per cent. "We must have faith in India's resilience & come out of all odds", RBI Governor also said.

The governor may also comment on the recent economic package announced by the government to counter the COVID-19 impact in the economy.

Besides, the Apex bank took other major decisions keeping in mind the devastating economic impact of COVID-19 pandemic.

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 a year ago, and are presently at an all-time low averaging between 7.15 per cent to 7.8 per cent", explained Puri. Industries have been demanding extension of the moratorium facility for another three months. So we will see these meetings with the finance minister and the heads of public sector banks and then you will see some kind of a pick up and a little bit of arm twisting perhaps. Lowering the cost of capital is some relief in these times.

Other reports by Click Lancashire

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