Reforms in Monetary Policy amidst COVID-19, by Reserve Bank of India (RBI)
Reforms in Monetary Policy amidst COVID-19, by Reserve Bank of India (RBI)
After the major reforms announced by Finance Ministry (Atamnirbhar Bharat Scheme), RBI comes up with another move on Friday 22.05.2020 to increase the liquidity and to maintain the GDP growth rate & Inflation by changing the monetary policy. RBI governor in his speech also focuses on boosting export and maintain the foreign exchange reserve. Combination of fiscal, monetary, and administrative measures will help economy revive in the second half of this F.Y.
Key Highlights of the reforms announced by RBI governor Shakti Kant Das were:
- RBI to cut down the Repo Rate by 40 basis points from 4.4% to 4% and Reverse Repo Rate will remain at 3.35%, this will reduce the interest rate for borrowing new loans by banks.
- With an estimation, Inflation will remain firm and GDP growth may be negative in F.Y. 2020-21, RBI announced extension of loan moratorium further by 3 months till 31.08.2020, this is much-needed relief to borrowers whose income has been hit due to the coronavirus crisis and Lending institutions are being permitted to restore the margins for working capital to the origin level by March 31, 2021.
- To give a boost to exports, maximum permissible period of pre and post shipment of credits has been increased from 12 months to 15 months and Rs 15,000 crore has been allocated to EXIM banks to avail US dollar swap facility.
- In order to provide greater flexibility of SIDBI, another 90 days extension for the 90-day term loan facilities will be offered. This will provide additional liquidity support to the MSME sector.
- RBI hiked Group exposure limit of banks will be increased from 25% to 30% till 30.06.2021, Group exposure limit determines the maximum amount a bank can lend to one business house. This will provide additional fund to the large business houses.
- RBI earlier announced Voluntary Retention Route (VRR) for Investments by Foreign Portfolio Investors (FPIs) on 01.03.2019, under which a 3 months extension is allowed to meet 75% utilization of investment limits in India.
