RBI announces nine additional measures for strengthening the Economy

May 22:

RBI Governor Shaktikanta Das announced yet another set of nine measures to smoothen the flow of finance and preserve financial stability in the turbulent and uncertain times ushered in by the COVID-19 pandemic.

Making the announcements through an online address, the Governor stated that we must have faith in India’s resilience and capacity to overcome all odds. Expressing the confidence that we will together triumph over today’s traumatic trials, the Governor spoke with a sense of calling. He noted that the situation warrants that “central banks have to answer the call to the frontline in defence of the economy”. The announcements are

Repo rate reduced by 40 basis points

Refinance Facility to SIDBI extended for another 90 days

Relaxation of Rules for Foreign Portfolio Investment under Voluntary Retention Route

Exporters can now Avail Bank Loans for Higher Period

Loan facility to EXIM Bank

More time for Importers to Pay for Imports

Extension of Regulatory Measures by another 3 Months

Provision to convert Interest on Working Capital into Interest Term Loan

Increase of Group Exposure Limit to Increase Fund Flow to Corporates

States allowed to borrow more from Consolidated Sinking Fund

Assessment of Economy

Presenting an assessment of the global economy, the Governor said that the macroeconomic and financial conditions are austere by all counts. He stated that the global economy is headed inexorably into a recession.

The domestic economy too has been severely impacted by the two-month lockdown, said the Governor. “The top 6 industrialised states that account for about 60 per cent of industrial output are largely in red or orange zones.” Demand has collapsed, production has come down, taking a toll on fiscal revenues. Private consumption has been dealt a severe blow.

The Governor said that agriculture and allied activities have provided a beacon of hope, amidst this encircling gloom. A ray of hope also comes from the forecast of a normal southwest monsoon in 2020 by the India Meteorological Department.

Given all these uncertainties, GDP growth in 2020-21 is estimated to remain in negative territory, with some pick-up in growth impulses from H2: 2020-21 onwards. Much will depend on how quickly the COVID curve flattens and begins to moderate.