Bikky Khosla | 25 May, 2020
The Reserve Bank of India last week reduced
lending rates by 40 basis points to 4 percent from 4.40 percent after a yet
another out-of-turn Monetary Policy Committee meeting. Taken amid the ongoing
COVID-19 crisis, the step is aimed at mitigating the combined impact of demand
compression and supply-side disruption caused by the nationwide lockdown. Apart
from repo rate cut, some other major decisions have also been announced, raising
expectation that they will augur well for the economy.
Though, these days, there not
many investment proposals on the anvil, the rate cut decision
is expected to boost sentiment, while another decision – extension of the
moratorium on interest payments on all term loans for another three months – is
likely to benefit a large number of commercial borrowers. Deferment of
payment of interest on working capital loans is another welcome decision. Similarly,
easing of withdrawal rules of a consolidated sinking fund maintained by states
will help them service their debt.
There is good news also for exporters and importers. Pre
and post shipment credit for the exports sector is now extended from existing
12 months to 15 months which will provide a much-needed relief by allowing them
more liquidity. On the other hand, extension of onward remittance for imports from
6 months to 12 months will benefit them by allowing them longer repatriation
period. The RBI has also extended a credit line of Rs 15,000
crore to EXIM Bank to enable it to avail a U.S. dollar swap facility.
Making the announcements, the RBI said
that the macroeconomic impact of the pandemic is turning out to be more severe
than previously thought, and it has taken the latest steps to instil confidence
and ease financial conditions further. In fact, since the lockdown began the
central bank has cut 1.15 percentage points from the rate
chart, and it is widely expected that our lending institutions will now shed
their reticence. Also, adequate fiscal measures are needed
to ensure efficacy of these monetary measures.
I invite your opinions.