RBI Governor Press Conference Highlights: Shaktikanta Das Announces Emergency 40 Basis Point Rate Cut, 3-Month Loan Moratorium Extension
RBI's Top 5 Announcements
- Repo rate cut by 40 basis points
- Loan moratorium extended for 3 months.
- Headline inflation could stay firm in first half of 2020, but soften thereafter. If inflation trajectory evolves as expected, space will open up for more rate cuts.
- India GDP growth in 2020-21 is estimated to remain in negative territory.
- Regulatory measures to support exports, imports, states.
Bankers React To Announcements
Rajnish Kumar, Chairman, SBI
- The central bank’s measures around moratorium, reduction in interest rates etc will allow the revival of the economy.
- RBI response is a calliberated one, keeping in mind the situation which is arising.
- There is a need for a one time restructuring scheme for those which are facing deeper stress than temporary cash flow issues, he added.
- Reviewing NBFCs on a case to case basis for moratorium.
- Have to keeping in mind that the NBFCs are seeing an improvement on their collections.
- Government has come out with a partial guarantee scheme
- Considering these measures there is enough headroom for NBFCs to manage their cash flows.
- Currently 20 percent of customer base have opted for moratorium.
- Customers are seeking moratorium not just due to cash flow issues, but also to conserve cash.
Mrutyunjay Mahapatra, MD & CEO, Syndicate Bank
- RBI's steps a mix of responsive & proactive measures.
- RBI governor didn't refer to any additional conditions w.r.t. moratorium; my understanding is that all sectors which were beneficiaries, will get the extension.
Experts React To Announcements
Jayesh Mehta, MD & Country Treasurer, BofA-ML
- Rate cut a positive surprise; not many weren't expecting the cut so soon
- MPC is going to be very focussed on growth, not expecting much focus on inflation in the near term
- Further, small rate cuts possible, if necessary transmission doesn't happen
Saugata Bhattacharya, Chief Economist, Axis Bank
- There's a confluence of problems; made sense for the MPC to not wait any longer
- Rate cut will allow banks to reduce rates on fresh loans
- Entire set of measures today designed to ease cash flow pressures
- Don't expect demand-led inflation spike in the near term
- Further, small rate cuts possible
Rahul Bajoria, India Economist, Barclays
- MPC's surprise rate cut shows policy makers nimble and calibrated in response to incoming data
- Takes 9-15 months for rate cuts transmission; but rate cut is important from a signaling standpoint
- Measures announced could help improve credit transmission, even if rate transmission takes longer
- No indication that reverse repo will go below the deposit rate
- Don't think front-loaded cutting cycle necessarily indicates a deeper cutting cycle
- RBI signalling to the markets that things are going to be fairly accomodative given the evolving situation
Karthik Srinivasan, ICRA
- Hope extension of moratorium is applicable to NBFCs & HFCs.
- Had confusion in the first round; wouldn't want to have any hiccups on the non-bank side now that moratorium has been offered effectively for 6 months.
- Collection efficiencies may come down, since the moratorium has been extended; expect more customers to opt for the moratorium.
- Will need to wait till mid-October to estimate asset quality trends.
- Keep financial system, financial markets sound, liquid and smoothly functioning
- To ensure access to finance to all, particularly those that tend to get excluded by financial markets
- To preserve stability
Regulatory Measures: Moratoriumm Extended By Three Months
- Measures done to complement the rate cut.
- As and when the situation warrants, to the best of our abilities, we are taking all essential measures.
- Rs 15,000 crore facility created for SIDBI to be extended by another 90 days.
- To extend line of credit of Rs 15,000 crore to EXIM Bank for 90 days.
- Maximum permissible period of pre-shipment and post shipment export credit to be extended to 15 months.
- To extend time period for outward remittances for normal imports from 6 months to 12 months.
- In view of extension of lockdown, the provisions for moratorium on term loan repayments are being extended by another 3 months.
- RBI permits banks to extend margins on working capital facilities to original levels by March 31.
- Group exposure limit of banks to be increased from 25 percent to 30 percent of eligible capital base till June 30, 2021
Das On Inflation, Growth Outlook
The MPC gave a directional inflation guidance instead of one with levels, citing complications due to partial release of data by the NSO.
- Prices of vegetables, pulses, oil seeds have emerged as pressure areas
- India's merchandise exports plunged by 60.3 percent in April
- India's forex reserves have increased by $9.2 billion since Apr 1 to $487 billion
- Among pressure points, elevated levels of pulses prices is worrisome
- International crude oil prices, metals, and industrial raw materials likely to remain soft.
- MPC is of the view that headline inflation could stay firm in first half of 2020, but soften thereafter
- In Q3 and Q4 of current financial year, headline inflation could fall below MPC's projection
As for the interest rate, Das signaled towards a possibility of further rate cuts depending on the need and policy space. TheMPC believes that it is essential to instill confidence and ease financial conditions, he said.