Governor Shaktikanta Das Press Conference Highlights – 22 May 2020

Reserve Bank of India (RBI) Governor Shaktikanta Das addressed the media at 10 am on 22 May 2020. This is his third press conference in the last two months wherein he had announced a string of measures to ease liquidity in the banking and financial sectors. This included steps to expand liquidity in the market, reinforce monetary transmission, ease financial stress by relaxing repaying pressures and improve the functioning of markets because of high volatility. Let us now have a brief look at the Governor Shaktikanta Das Press Conference Highlights here in this article. 

Governor Shaktikanta Das Press Conference Highlights - 22 May 2020

Governor Shaktikanta Das Press Conference Highlights 

1. Monetary Policy Committee (MPC) cuts repo rate by 40 basis points to 4%. 

He said that Covid-19 has crippled the global economy and has brought forward the need for an off-cycle meeting of the Monetary Policy Committee (MPC). The MPC has voted unanimously in a reduction of policy repo rate to revive growth and mitigate the impact of Covid-19. The repo rate has been cut by 40 basis points from 4.4% to 4%.

2. Reverse repo rate slashed to 3.35%

The reverse repo rate was reduced simultaneously to 3.35 per cent from 4%.

Following a cut in RBI’s key interest rates, loan EMIs are set to get cheaper particularly the home loans that are linked to the marginal cost of funds-based lending rate (MCLR) of the lending banks.

3. Industrial production shrinks by 17% in March 2020

The RBI Governor says industrial production shrank by 17 per cent in March due to India’s lockdown while manufacturing activity fell by 21 per cent. The output of core industries contracted by 6.5 per cent.

4. GDP growth to remain in negative territory

RBI Governor said the simultaneous fiscal, monetary and administrative measures will create conditions for a gradual revival of activity in the second half of 2020-2021. He says GDP growth is estimated to remain in the negative territory, with some pick up in the second half.

5. India’s foreign exchange reserves are at $487 billion

India’s foreign exchange reserves have increased by $9.2 billion during 2020-21 from April 1 onwards, says RBI Governor Shaktikanta Das. Till May 15, foreign exchange reserves stood at $487 billion.

6.Moratorium on term loans extended by another three months till August

He announced four policy decisions taken by the MPC to mitigate the impact of Covid-19. These include measures to improve the

  • The functioning of markets;
  • Investments by FPIs by voluntary retention route;
  • Support for exports and imports;
  • Extension of measures to ease financial stress.
Governor Shaktikanta Das also added that RBI is at the forefront to meet COVID-related challenges. 

The RBI is at the forefront and will continue taking measures necessary to meet Covid-19 related challenges. RBI will remain vigilant and use all its instruments — and even fashion new ones — to keep the financial system smoothly functioning, ensure access to all and to preserve financial stability.

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RBI Monetary Policy Highlights

On 27th of March 2020, RBI’s Monetary Policy Committee came up with the 7th Bi-monthly Monetary Policy Statement 2019-20. All members of the MPC unanimously voted to reduce the policy Repo Rate and to maintain the accommodative stance of monetary policy as long as necessary to revive growth, mitigate the impact of COVID-19, while ensuring that inflation remains within the target. While there were some differences in the quantum of reduction, the MPC voted with a 4-2 majority to reduce the policy rate by 75 basis points to 4.4 per cent. Go through this blog for 7th Bi-monthly Monetary Policy Highlights 2019-20.

1. Monetary Policy Key Rates 

Repo Rate 4.40%
Reverse Repo Rate 4.00%
Marginal Standing Facility (MSF) & Bank Rate 4.65%
Cash Reserve Ratio 3.00%
Statutory Liquidity Ratio 18.25%

 

1.1. Key Highlights

Repo Rate – The RBI’s Monetary Policy Committee has voted in favour of an interest rate cut to the tune of 75 basis points, which brings the repo rate down to 4.4 per cent from 5.15 per cent.

Reverse Repo Rate – The reverse repo rate has also been reduced by 90 basis points to 4 per cent in a bid to maintain financial stability and revive growth.

The purpose of this measure relating to reverse repo rate is to make it relatively unattractive for banks to passively deposit funds with the Reserve Bank and instead, to use these funds for on-lending to productive sectors of the economy. 

Cash Reserve Ratio – To help banks tide over the disruption caused by COVID-19, it has been decided to reduce the cash reserve ratio (CRR) of all banks by 100 basis points to 3.0 per cent of net demand and time liabilities (NDTL) with effect from the reporting fortnight beginning March 28, 2020, for one year. This reduction in the CRR would release primary liquidity of about ₹ 1,37,000 crore uniformly across the banking system in proportion to liabilities of constituents rather than concerning holdings of excess SLR.

Marginal Standing Facility – Given the exceptionally high volatility in domestic financial markets which brings in phases of liquidity stress and to provide comfort to the banking system, it has been decided to increase the accommodation under the marginal standing facility (MSF) from 2 per cent of the statutory liquidity ratio (SLR) to 3 per cent with immediate effect. This measure will be applicable up to June 30, 2020. This measure should provide comfort to the banking system by allowing it to avail an additional ₹ 1,37,000 crore of liquidity under the LAF window in times of stress at the reduced MSF rate announced in the MPC’s resolution.

Regulation and Supervision

Moratorium on Term Loans – All commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies and micro-finance institutions) (“lending institutions”) are being permitted to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020.

 

2. Impact of COVID-19 (Corona Virus) on the Monetary Policy Rates

The decision and its advancement have been warranted by the destructive force of the coronavirus.

It is intended to

(a) mitigate the negative effects of the virus;

(b) revive growth and above all,

(c) preserve financial stability. 

RBI Governor said that the outlook remains extremely uncertain at the time and going forward much will depend on how India battles Covid-19 (Coronavirus) pandemic.

He said, “The outlook is now heavily contingent upon the intensity, spread and duration of the pandemic. There is a rising probability that large parts of the world will slip into recession.”

“MPC noted that global economic activity has come to a near stand-still as Covid-19 related lockdowns and social distancing in affected countries. Expectations of a shallow recovery in 2020 from 2019’s decade low in global growth have been dashed.”

Cash Reserve Ratio (CRR) of all banks has been reduced by 100 basis points to 3% of Net Demand and Time Liabilities with effect from the fortnight beginning March 28 for 1 year. 


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