RBI Keeps Interest Rates Unchanged, Proposes More Measures to Fight Covid-19
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The Monetary Policy Committee (MPC) has decided to keep its benchmark repo rate unchanged at 4 per cent, said the Reserve Bank of India (RBI) governor Shaktikanta Das on Thursday. Consequently, the reverse repo rate has also been kept unchanged at 3.35 per cent.
“The MPC voted unanimously to leave the policy repo rate unchanged at 4 per cent and continue with 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 going forward,” Das said in a statement.
The central bank has slashed interest rates by 115 basis points (bps) since the beginning of this year, bringing it to the lowest level since 2000. Repo rate was last cut in an off-cycle policy review in May.
Das said that the global economic activity has remained fragile and in retrenchment across countries. During May-July, scattered withdrawal of COVID-19 lockdown restrictions in some countries enabled some improvement in high frequency indicators but a renewed surge in the number of cases and threats of a second wave seems to have weakened these early signs of revival.
A somewhat similar trend can be seen back home. “On the domestic front, economic activity had started to recover from the lows of April-May following the uneven re-opening of some parts of the country in June; however, surges of fresh infections have forced re-clamping of lockdowns in several cities and states. Consequently, several high frequency indicators have levelled off,” pointed the official statement.
In view of the economic stress caused by Covid-19, the MPC maintained that the GDP growth will be in contraction zone but yet again refrained to give a figure.
Value of Loans Against Gold Increased, Push for Offline Payments System
In the last four months, RBI has announced a bunch of liquidity and regulatory measures to mitigate the impact of Covid-19 on the economy. Today, the MPC further announced another tranche of developmental and regulatory policy measures to support the economy.
First, additional special liquidity facility of INR 10,000 crore will be given to National Housing Bank (NHB) and National Bank for Agriculture and Rural Development (NABARD). Of the total, INR 5,000 crore will go to NHB to shield the housing sector from liquidity disruptions and enable credit flow through housing finance companies (HFCs). Another INR 5,000 crore will go to NABARD to improve liquidity stress being faced by non-banking finance companies (NBFCs) and micro-finance institutions.
In April, RBI had announced a special re-finance facility of INR 50,000 crore for All India financial institutions (AIFIs), which included NABARD and NHB.
Second, loan against gold ornaments for non-agricultural purposes increased from the current 75 per cent of the ornament’s value to 90 per cent. This relaxation is available till 31 March, 2021.
Third, the central bank has allowed stressed micro, small and medium enterprise (MSME) borrowers to restructure their debt, provided their accounts with the concerned lender were classified as standard as on March 1, 2020.
In some other key move, the RBI will push for online payments system to push the adoption of digital payments to those who do not own smartphones.
These measures aim to enhance liquidity support for financial markets, further ease financial stress caused by COVID-19 disruptions while strengthening credit discipline, improve the flow of credit and also facilitate innovations across the financial sector by leveraging technology, as per RBI.