RBI extends loan moratorium by three more months to August 31

Impact of RBI repo rate cut on borrowers depositors- who should do what

In a new set of measures to trim the impact of coronavirus on the economy, the Reserve Bank of India (RBI) on Friday chose to cut the policy rate by 40 basis points from 4.4 per cent to 4 per cent.

Finance minister Nirmala Sitharaman is scheduled to hold a review meeting with the CEOs of public sector banks today to discuss credit offtake.

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.

Revenues have been impacted severely due to slowdown in economic activity amid COVID-19 outbreak, Das said.

Among other announcements, the RBI also extended the special refinance facility of Rs 15,000 crore to SIDBI that it had earlier announced at RBI's policy repo rate for another period of 90 days.

"The repo rate cut by 40 basis points from 4.4 % to 4%".

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.

This, the Governor attributed to current global demand-supply balance, low worldwide crude oil prices, soft global prices of metals and other industrial raw materials, which are likely to keep input costs low for domestic firms, deficient demand and volatility in financial markets. Red zones have heavier lockdown restrictions.

The Governor also said that consumer durables production fell by 33 per cent in March 2020 as a result of the private consumption slump. Demand for fuel has plunged.

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.

There will be gradual revival of activity and demand by the second half of FY21, said RBI governor. He said the GDP growth would remain in negative territory, with some pick up in the second half. Banks have to reset their rates at least once every quarter.

"At the same time, they seem to be comfortable on the inflation front".

The 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.

"Going forward, we will continue to be vigilant and we will take whatever measures are necessary to meet the Covid-related challenges which are ahead of us", Das said.

The loan moratorium will be extended till August 31, says RBI governor Shaktikanta Das.

So, now, for a borrower with an original loan amount of Rs 45 lakh, carrying a 7.25 per cent interest rate and tenure of 25 years, the equated monthly instalment will come down from Rs 32,526 to Rs 31,301, a saving of Rs 1,225 per month. "That should help to prevent an immediate deterioration in bank balance sheets", it said.