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Interest rate cut to revive demand; more support needed: India Inc

The Reserve Bank unexpectedly slashed benchmark interest rates to their lowest levels since 2000 and extended the moratorium on repayment of loans for three months to ramp up support for the economy which is likely to contract for the first time in over four decades.

May 22, 2020 / 05:42 PM IST
RBI Governor Shaktikanta Das (PTI)

RBI Governor Shaktikanta Das (PTI)

 
 
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India Inc on Friday said the Reserve Bank's surprise move to slash key interest rates will provide a much-needed respite to small businesses and also revive demand.

The industry said more support will be required on an ongoing basis both from the RBI and government to stimulate economic growth amid the COVID-19 pandemic.

The Reserve Bank unexpectedly slashed benchmark interest rates to their lowest levels since 2000 and extended the moratorium on repayment of loans for three months to ramp up support for the economy which is likely to contract for the first time in over four decades.

The benchmark repurchase (repo) rate was cut by 40 basis points to 4 percent, the lowest since the benchmark came into being in 2000, Governor Shaktikanta Das said.

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CII Director General Chandrajit Banerjee said the RBI should also consider extending this moratorium to NBFCs for their repayment to banks, without which the NBFCs sector is facing acute distress.

"Another move the RBI should consider is to allow one-time restructuring of loans to relieve stressed businesses. Group exposure limit for lenders to corporates to 30 percent from 25 percent is a welcome move too, as it is expected to help banks meet the borrowing requirements of the private sector," Banerjee stated.

FICCI President Sangita Reddy said, "With the outlook for economic growth being very uncertain and RBI itself admitting that GDP growth in the current fiscal will be negative, FICCI feels that more support will be required on an ongoing basis both from RBI and government and we shall remain engaged and keep providing feedback on behalf of Indian industry to the policymakers and regulator."

Mandar Pitale, Head - Treasury at SBM Bank (India), said the accommodative stance by the central bank is a further indication that it will not shy away from fiddling with interest rates going ahead, depending on the data.

"With job losses mounting and economic activity showing little signs of improvement due to the raging coronavirus scare, the move to extend the loan moratorium period should provide respite to individuals and small businesses,” Pitale added.

Assocham President Niranjan Hiranandani said, “RBI's third presser since the lockdown is a continued effort to increase private consumption and provide liquidity access to all sectors hit by the COVID-19 pandemic. These measures will help revive demand crippled by the lockdown.”

He said the continued proactive measures taken by the RBI will help address these issues and revive the economy in the second half of the year.

The central bank, which advanced the monetary policy committee (MPC) meeting for the second time since March, extended the three-month moratorium of loan repayments, from June 1 to August 31 and raised the limit on banks' group exposure to companies.

It also increased credit for pre and post-shipment of exports from 1 year to 15 months and gave additional three months to foreign portfolio investors to meet investment needs.

The benchmark rates decide the interest on home, auto and other loans. They also dictate interest rates on savings deposits, which are likely to fall in tandem.

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PTI
first published: May 22, 2020 05:35 pm

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