RBI measures announced today

RBI Governor held a press conference briefing today (22 May 2020) announcing certain monetary easing measures including extending the moratorium period by another 3 months till 31-Aug-2020.  

An unscheduled meeting of the Monetary Policy Committee (MPC) voted 5:1 to cut the repo rate by 40 bps (basis points) to 4.00%. It is an an emergency cut in the policy repo rate. You can see how the repo rates moved over the last 10 years. We are nearing almost where we were in 2009.

Accordingly, the reverse repo rate now stands at 3.35%. The lowest reverse repo rate in the last 15 years was in Apr 2009, when it was 3.25%.

What are these repo rate and reverse repo rate? To know more about it and on CRR, LAF, please CLICK HERE.

The Marginal Standing Facility (MSF) rate is down to 4.25%

What is MSF? It is a facility given to the banks to borrow money from the RBI by pledging the government securities at a rate which is higher than the repo rate. This the banks borrow when the inter bank liquidity dries up.

Measures to ease financial stress:

• Extension of moratoriums by additional 3 months from June 1, 2020 till August 31, 2020 - i.e  6 months moratorium
• Permit lending institutions to convert the accumulated interest on working capital facilities over the total deferment period of 6 months (i.e. March 1, 2020 up to August 31, 2020) into a funded interest term loan which shall be fully repaid during the course of the current financial year, ending March 31, 2021.
• Easing of Working Capital Financing – In respect of working capital facilities, lending institutions may recalculate drawing power by reducing margins till the extended period, i.e. August 31, 2020 and by reassessing the working capital for the borrowers upto an extended period till March 31, 2021. Any changes in credit terms will not result in asset classification downgrade.

Measures to support Exports and Imports:

• Export – RBI has 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 upto July 31, 2020.
• Extension of time for payment of Imports – RBI has decided to extend the time period for completion of remittances against normal imports into India from 6 months to 12 months from the date of shipment for such imports made on or before July 31, 2020. The measure will provide greater flexibility to importers in managing in their operating cycles in a Covid-19 environment.

Due to this pandemic situation, the GDP is expected to be remain in a negative zone.