RBI Governor Press Conference Highlights: Shaktikanta Das Announces Emergency 40 Basis Point Rate Cut, 3-Month Loan Moratorium Extension 

• 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.

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.

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

• 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

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.

Domestic economic activity impacted severely by 2-month lockdown, the governor said.

• Top six industrialised states that account for 60 percent of activity are largely in red and orange Covid-zones
• High-frequency indicators point to collapse in demand from March across urban and rural segments
• Output of core industries contracted by 6.5 percent
• Manufacturing PMI recorded sharpest deterioration to 27.4
• Agriculture and allied activities have acted as a beacon of hope
• Food grain production rose 3.7 percent to a new record
• By May 10, 2020, Kharif sowing was higher by 44 percent vs last year's acreage
• RBI being extremely careful, level of vigilance at highest in various segments of economy

The global economy is inexorably headed towards a recession, said RBI Governor Shaktikanta Das.

• By all counts, macro-economic conditions are austere.
• Global manufacturing PMI contracted to 11 year low in April.
• Volume of world trade can shrink by 13-32 percent this year as projected by WTO.
• Global financial markets have calmed, volatility have ebbed
• Markets have generally been disconnected from developments in the real economy.

In the second such rate cut, India’s Monetary Policy Committee decided to lower the repo rate by 40 basis points to 4 percent, according to central bank Governor Shaktaikanta Das.

In its first video address after the coronavirus outbreak, the MPC had lowered the repo rate by 75 basis points.

The MPC voted 5:1 in favour of the quantum of the rate cut and maintained the accommodation stance. All members had voted to reduce the key interest rate.

• The Monetary Policy Committee reduced the repo rate by 75 basis points and the reverse repo rate by 90 basis points int he first such briefing, only to reduce the reverse repo rate by another 25 basis points int he second briefing.
• CRR of all banks to be reduced by 100 basis points to 3 percent beginning March 28, for one year. This will release liquidity of 1,37,000 crore across the banking system.
• All lending institutions are being permitted to allow a moratorium of three months on repayment of installments for term loans outstanding as on March 1, 2020.
• Asset classification standstill for all accounts where moratorium granted.
• A TLTRO auction worth Rs 1 lakh crore, followed by a TLTRA 2.0 auction of Rs 50,000 crore.
• Date for commencement of commercial operations, in NBFCs loans to commercial realty projects, can be extended by 1 year.
• To provide special refinance facilities of Rs 50,000 crore to NABARD, SIDBI, NHB to address sectoral credit needs.

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India is struggling to restart economic activity as coronavirus infections in the nation continue to rise at the fastest pace in Asia. A lockdown of more than 60 days now had brought businesses to a halt in most regions and sectors. Consumption, too, has taken a hit amid an uncertain environment, layoffs and salary cuts.

Goldman Sachs estimates a 45 percent drop in India’s gross domestic product in the April-June quarter, making it the deepest recession the subcontinent has ever seen.

The Reserve Bank of India charted several measures, including relaxing bad loan rules, a moratorium for loan payments and EMIs, TLTRO auction of around Rs 1.5 lakh crore, targeted liquidity towards small businesses, housing lenders and other NBFCs, among others.

The Government of India, too, announced a Rs 20-lakh-crore relief package, which counts the central bank’s measures and gives little account of upfront government spending, equivalent to 10 percent of the country’s GDP.

Principal Economic Adviser to the Finance Ministry, Sanjeev Sanyal, had defended this in an interview with BloombergQuint, saying that all economic packages are a combination of monetary and fiscal firepower. “Our space is much larger on the monetary side so we are utilising that,” he had said.

He also expressed that the central bank has more space to reduce interest rates, given the country’s low inflation.

Reserve Bank of India Governor Shaktikanta Das is set to address the media at 10 a.m. today, at a time most liquidity measures taken so far have failed to boost lending or sentiment in the country.

This is the third such address by the central bank governor.