RBI Governor's Press Conference Highlights

Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday announced various measures to tackle the devastating economic impact of the ongoing coronavirus-induced lockdown, including a 40 basis point off-cycle repo rate cut and extension of loan moratorium scheme.

Here are the key highlights from RBI Governor's press briefing today:

Repo rate: The RBI slashed the benchmark lending rate by 40 basis points to mitigate the impact of the COVID-19 crisis. In an off-cycle meeting of the MPC, the decision was taken unanimously to cut repo to support growth. Following the reduction, the repo rate has come down to 4 percent and the reverse repo rate has been cut to 3.35 percent. Consequently, the Marginal Standing Facility (MSF) rate and the Bank rate stand reduced to 4.25 percent from 4.65 percent. The reverse repo rate stands reduced to 3.35 percent from 3.75 percent. 

Inflation: Reserve Bank Governor Shaktikanta Das on Friday said the inflation outlook is highly uncertain due to the outbreak of the COVID-19 pandemic and expressed concern over elevated prices of pulses. He also said there is a need to review import duties to moderate prices. Headline inflation may remain firm in the first half of the year and may ease in the second half. Inflation may fall below 4 percent in the third or fourth quarter of the current fiscal, according to the Governor.

Forex: India's foreign exchange reserves have increased by $9.2 billion during 2020-21 from April 1 onwards. So far, up to May 15, foreign exchange reserves stand at $487 billion, the governor said in his press briefing.

Loan moratorium: The RBI has extended loan moratorium until August 31, which makes it a six-month moratorium. RBI on March 27 had permitted all lending institutions to allow a three-month moratorium relief to their borrowers from March 1, 2020, up to May 31, 2020 to help ease any debt servicing for borrowers impacted due to COVID-19. The moratorium on interest on working capital was also extended by three months. Also, interest accumulated for the six-month moratorium period can be converted into a term loan, Das said.

World trade: RBI Governor Shaktikanta Das said the volume of world trade can shrink by 13-32 percent in 2020, as projected by the World Trade Organisation (WTO) with the "Global economy is inexorably headed into a recession". The global manufacturing purchasing managers index (PMI) contracted to an 11-year low in April 2020. 

GDP growth: India's GDP growth is estimated to be in negative territory in FY21, said the RBI Governor. There is a collapse in demand in both urban and rural demand since March 2020, says Shaktikanta Das. There will be a gradual revival of activity and demand by the second half of FY21.

Domestic demand: Due to the two months coronavirus-induced lockdown, economic activity has been severely impacted, the Governor said. The top 6 industrialised states that account for about 60 percent of industrial output are largely in red or orange zones. Investment demand has been virtually halted by a decline of 36 percent in the production of capital goods in March, which was coincident with a contraction of 27 percent in imports of capital goods in March and 57.5 percent in April. This is also evident in a fall of 91 percent in finished steel consumption in April and a 25 percent shrinkage in cement production in March. The biggest blow from COVID-19 has been to private consumption, which accounts for about 60 percent of domestic demand. The production of consumer durables fell by 33 percent in March 2020, accompanied by a 16 percent decline in the output of non-durables.

Agriculture: The sector and allied activities have provided a beacon of hope on the back of an increase of 3.7 percent in foodgrains production to a new record (as per the third advance estimates of the Ministry of Agriculture released on May 15, 2020). A ray of hope also comes from the forecast of a normal southwest monsoon in 2020 by the India Meteorological Department (IMD). By May 10, 2020, up to which the latest information is available, Kharif sowing was higher by 44 percent over last year’s acreage. Rabi procurement is in full flow in respect of oilseeds, pulses and wheat, benefiting from the bumper harvest. These developments will support farm incomes, improve the terms of trade facing the farm sector and strengthen food security for the country. Going forward, these would also have a salutary effect on food price pressures.

External Sector: India's merchandise exports and imports suffered their worst slump in the last 30 years as COVID-19 paralysed world production and demand. India’s merchandise exports plunged by 60.3 percent in April 2020 while imports contracted by 58.6 percent. The trade deficit narrowed to US$ 6.8 billion in April 2020, lowest since June 2016. On the financing side, net foreign direct investment inflows picked up in March 2020 to US$ 2.9 billion from US$ 0.8 billion a year ago. In 2020-21 so far (till May18), net foreign portfolio investment (FPI) in equities has also increased to US$ 1.2 billion from US$ 0.8 billion a year ago. In the debt segment, however, there were portfolio outflows of US$ 3.8 billion during the same period as against outflows of US$ 1.4 billion a year ago.

Markets: The RBI had earlier announced a special refinance facility of Rs 15,000 crore to SIDBI at RBI’s policy repo rate for a period of 90 days for onlending/refinancing. In order to provide greater flexibility to SIDBI, it has been decided to roll over the facility at the end of the 90th day for another period of 90 days.

Since its introduction, the VRR scheme has evinced strong investor participation, with investments exceeding 90 percent of the limits allotted under the scheme. In view of difficulties expressed by FPIs and their custodians on account of COVID-19 related disruptions in adhering to the condition that at least 75 percent of allotted limits be invested within three months, it has been decided that an additional three months time will be allowed to FPIs to fulfill this requirement.

Export Credit: In order to alleviate genuine difficulties being faced by exporters in their production and realisation cycles, it has been decided to increase the maximum permissible period of pre-shipment and post-shipment export credit sanctioned by banks from the existing one year to 15 months, for disbursements made up to July 31, 2020.

Liquidity for Exim Bank: In order to enable EXIM bank to meet its foreign currency resource requirements, it has been decided to extend a line of credit of Rs 15,000 crore to the EXIM Bank for a period of 90 days (with rollover up to one year) so as to enable it to avail a US dollar swap facility.

Import Payments: With a view to providing greater flexibility to importers in managing their operating cycles in a COVID-19 environment, it has been decided to extend the time period for completion of outward remittances against normal imports (i.e. excluding import of gold/diamonds and precious stones/jewellery) into India from six months to twelve months from the date of shipment for such imports made on or before July 31, 2020.

  Report