RBI cuts repo rate by 40 bps: It is unexpected like rain in summer; regulatory, monetary measures to boost economy, say experts
The Reserve Bank of India (RBI) on Friday slashed the benchmark lending rate by 40 basis points to mitigate the impact of COVID-19 crisis.
The Reserve Bank of India (RBI) on Friday slashed its key policy rate for a second time this year in an emergency meeting to counter the economic fallout from an ongoing nationwide lockdown to contain the spread of the coronavirus.
The central bank cut the repo rate by 40 basis points to 4 percent. The reverse repo rate was also reduced by 40 basis points to 3.35 percent.
Rajnish Kumar, Chairman, SBI & IBA
The RBI policy announcement in response to the fallout of COVID pandemic is timely. The reduction in policy rate by 40 bps under the assumption that growth in FY21 will be negative is an appropriate move to support economic activity. Uncertainty associated with pandemic, normalisation of economic activity and relaxation made in social distance makes it imperative that policy response is calibrated and swift. In this context, extension of moratorium till August 31, enlargement of the Large Exposure Framework and option to convert accumulated interest for moratorium period into term loan are welcome measures. On the export side, increase in export credit period to 15 months from 1 year and buttressing EXIM Bank through Rs 15,000-cr line of credit is also timely.
Zarin Daruwala, CEO, India, Standard Chartered Bank
The RBI continued with its extraordinary commitment in its fight against COVID-19. The latest round of rate cuts, moratorium extension, deferment of interest on working capital facilities and relaxation in asset classification will provide the requisite balm to the economy. The support shown to EXIM Bank, SIDBI and to importers/exporters will also help boost sentiment. Finally, the easing of the rules governing the consolidated sinking fund will allow state governments to manage their market borrowings better and will prevent crowding out other borrowers.
Naveen Kulkarni, Chief Investment Officer, Axis Securities, Mumbai
The rate cut will have a limited impact in the short term, but is helpful to revive growth over a longer period. However, the decision to extend the moratorium period by another three months is a significant negative for the private banks both in the medium and long term. The impact on the banking sector will be negative.
Abheek Barua, Chief Economist, HDFC Bank, New Delhi
The off-cycle cut highlights the acute growth concerns that the RBI governor mentioned in his speech. The nimbleness of the RBI and its willingness to keep all options on the table is welcome. The rate cuts were in line with expectations. But the powder needs to be kept dry should the battle turn bloodier. (We are) certainly expecting more cuts of at least 50 bps going forward. The extension of the moratorium was widely anticipated and simply a response to an extension of the lockdown. Exposure limit increases adds to the flexibility of banks to lend and is very much a component of a ‘whatever it takes’ stand.
Shishir Baijal, Chairman & Managing Director, Knight Frank India.
We are delighted with the reduction in prime lending rates announced today by the RBI. With a cumulative 115 basis point rate cut by RBI as response to the impact of COVID -19, we are in line with the rate cuts announced by developed economies like USA (150 bps) and UK (65 bps). Given the backdrop of an unprecedented economic situation, we are happy that the RBI has reduced the key policy rate and taken note of rate cut transmission to borrowers. The extension on the moratorium and improved terms will provide a breather to industry and household borrowers alike. It would have been a big respite if the long-standing real estate industry demand for a one - time restructuring of loans was allowed along with the measures announced today. The expected contraction of the GDP is worrisome emanating from a significant drop in private consumption. While the RBI has taken steps to boost liquidity, one of the real challenges remains boosting of demand which we hope that subsequent announcements will address.
Rupa Reg Nitsure, Group Chief Economist, L&T Financial Holdings, Mumbai
There is no doubt that the RBI is doing most of the heavy lifting. However, when growth outlook is highly uncertain, facilitating credit, provision of moratorium and easing of NPA norms are short-term stabilisation measures. No doubt they are badly needed at this juncture, but the RBI will have to think of innovative ways to control the NPA influx and behavioural issues in a post-COVID era. India has not experienced such deep recession earlier, and coping with the help of a fragile financial sector will emerge as the formidable challenge for the RBI.
Joseph Thomas, Head of Research, Emkay Wealth Management, Mumbai
This would help in bringing down the market and lending rates mostly at the short end of the curve. The potential reduction in the cost of funds and the extension of moratorium will be supportive of financial stability, which is of extreme importance as of today.We expect rates across the curve to move lower from current levels, though on a risk-adjusted basis, the short- to medium-term would hold better value for long-term investor portfolios. In view of large issues at the primary for the rest of the year, from both central and state governments, the likely gains at the long end may come with elevated risks. The fall in the reverse repo rate would serve as a disincentive to banks who hold huge sums of liquidity to look at alternatives including gilts.
Sujan Hajra, Chief Economist, Anand Rathi Securities, Mumbai
The rate cut of 40 bps is in line with expectations as also the extension of loan moratorium. The measure to convert the moratorium interest payment into a term loan payable in course of FY21 is the most important announcement. This can reduce NPA, at least in the next 12 months. The additional liquidity measures remain rather muted. The RBI also remains circumspect on growth and inflation outlook.
Radhika Rao, Economist, DBS Bank, Singapore
The RBI flagged risks of a negative growth print this year, while holding back on a point target. They expect disinflationary forces to dominate, suggest they open for further reduction in cuts.Transmission will be watched closely with shorter tenor rates already well below the repo rate, given the surplus liquidity conditions, with benchmark-linked lending rates expected to correct down along with adjustments in saving rates.Moratorium on term loans was not only extended but repayment terms (interest payments) relaxed to prevent a cash-squeeze for borrowers. Relief for the bond markets front was absent and until a formal announcement is made, we expect intermittent securities’ purchase as part of liquidity operations to continue.
Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities, Mumbai
The RBI’s decision continues to indicate that they remain proactive. With the indication that the growth will be negative, we continue to see space for some further rate cut though the efficacy of rate cuts will progressively be lower.The extension of the moratorium bodes well. However, broader markets will focus on liquidity measures such as the path of OMO purchases (preferably a calendar) and regulatory measures to ensure both liquidity and solvency concerns are adequately addressed. Also, given the various dislocations that can emerge in the financial sector, markets will be focused on further steps by the RBI to safeguard the banking system (and broader financial system).
Rajat Rajgarhia, MD & CEO, Institutional Equities, Motilal Oswal Financial Services
RBI continues to support on the Monetary front by doing out of turn MPC meets to cut rates. Lowering the cost of capital is some relief in these times. Moratorium extension was expected, considering the economic activity levels. India would need more measures on a continous basis on both fiscal and monetary front to revive the economy from the current phase of negative growth.
Amar Ambani, Senior President and Head of Research – Institutional Equities, Yes Securities
Repo rate cut of 40 bps rate was need of the hour given the depressed economic activity and collapse in demand. However, another RBI rate cut was quite factored in and as a result India 10yr sovereign yields have moved lower by just 10 bps. Nevertheless, equity markets were expecting more from the central bank in terms of incremental Open Market Operations, respite to the banks in terms of not having to MTM HTM portfolio, and so on. Not surprisingly, banking stocks are down in trade. Though this announcement wasn’t a bazooka like the previous policy measures, there have been some positive measures like extension of term loan moratorium and increase in lending limit to corporates.
For banks, the extension of moratorium by another three months has two sides. The clarity on asset quality picture of the lenders will now emerge by March 2021 instead of September 2020. There is a risk of moral hazard issue creeping in, as borrowers who have the ability to pay, may even opt for moratorium. For MFIs and NBFCs catering to bottom of the pyramid customers, the risk of repayment behavior getting disturbed is higher.
Ramesh Nair, CEO and Country Head (India), JLL
The measures announced by the RBI today during the MPC meeting complement the economic stimulus package announced earlier by the Central government and Central Bank to restart the economy through liquidity infusion, fiscal support and reform led investments. There is a strong indication by the Bank to kick-start the economy by fueling demand across sectors including Real estate. Given the current grim economic, the environment underlined by weak demand and supply conditions, RBI has acted prudently to revive demand by facilitating cheaper credit and supply through enabling higher liquidity infusion across key sectors.
The 40 bps further reduction in the repo rate only gives more elbowroom to banks to reduce mortgage rates in favour of the homebuyers. The repo rate is now at 4.0 percent, which is lower than the 4.75 percent rate prevailing during April 2009 - global financial crisis period. A faster transmission of these benefits to the end consumer in the form of lower home loan rates will aid in improving their effective affordability. Further, the reverse repo rate cut from 3.75 percent to 3.35 percent will further disincentivise banks to park the surplus money with RBI, rather inject back into the productive sectors of the economy in the way of higher credit.
Kuntal Sur, Partner and Leader- Financial Risk and Regulation, PwC India
RBI Governor in his third press briefing in the last two months, informed that the world's fifth largest economy may enter in negative territory in FY 2020-2021. To revive the growth RBI has gone for accommodative policy with reducing repo rate by 40 bps. RBI also extended the three-month moratorium of loan repayments, from 1 June to 31 August and pre and post shipment of credits increased from 1 year to 15 months. All these monetary measures are aimed to revive growth in the H2 of FY 21.
Lakshmi Iyer, CIO (Debt) & Head of Products, Kotak Mahindra Asset Management Company
It’s raining in summer already! That’s the reaction to a surprise rate cut by RBI today where the repo rate was reduced by 40bp to 4 percent and reverse repo consequently is now at 3.35 percent (3.75 percent earlier). There is no doubt that COVID crises and its repercussions on the economic prospects has led the RBI to announce these measures. The downward march of interest rates is likely to gain momentum with this move. The combination of regulatory and monetary measures are indeed the much-needed steroids for the ailing economy. We expect easy liquidity conditions and downward rate movement to anchor bond yields and also ease cost of borrowing for the real sector.
Rajiv Sabharwal, MD and CEO, Tata Capital
The 40 bps rate cut is reflective of the RBI’s proactive measure to stimulate growth and address the adverse impact of the COVID–19 pandemic economic crisis. The rate cut emphasises the RBI’s resolve to provide systemic liquidity and reduce interest rate strains on the economy. Further, this would also translate into narrowing of spreads for corporate bonds and ease investor sentiments. Also, the Group exposure limit enhancement for banks will help channelise the credit flow to the NBFC sector. The 3 mongh extension of the moratorium relief was expected due to the extended lockdown of COVID-19.
Rohit Poddar, Managing Director, Poddar Housing and Development Ltd.; Joint Secretary, NAREDCO Maharashtra
The economic revival will start with the opening up of the lockdown and a return of the working population to work asap and dealing with the new normal of living with the virus by taking adequate measures. The measures that the RBI is taking to try and boost the economy is positive, however they must insist on transmission of liquidity and the rate cuts to the borrowers from the banks and financial institutions, which is currently not happening as fast as it can be in the context of the pandemic. Furthermore serious and effective steps are required to be taken to boost the demand side of the economy and spur consumption which we hope will happen soon.
Anurag Mathur, CEO, Savills India
The RBI has underscored the magnitude of stress that has crept into the economy as a consequence of the global pandemic. By forecasting a negative GDP growth, as well as highlighting sharp shrinkage in industrial production and export, the RBI governor gave several indicators outlining the difficult path ahead. Considering these challenges, the RBI, as expected has yet again acted positively by lowering the repo rates by 40 bps taking it to 4%. Further, by extending the moratorium by another three months, it aims to ease the financial burden of several mid to small sized businesses, which are faced with negligible cash inflows. Both of these are commendable, under the circumstances.
Lowering the rates may help accelerate the decisions of a section of home buyers, in the next few months, if not immediately. It will also help in reducing the EMI burden of customers during such grave times, provided the banks pass down the rates. However, these measures alone may not create a demand base for the overall revival of the real estate market. A significant advancement on financial, economic and social security will be needed in the medium-term.
Farshid Cooper, MD, Spenta Corporation
In addition to the economic stimulus package announced last week, the announcement of a revision in Repo rates and the extension of the moratorium on term loans provides much needed relief to the economy. The revised repo rate and the extension of moratorium would provide relief to borrowers, especially non-essentials business owners and self-employed as it would be difficult for them to manage their financial needs during this challenging time. This move is likely to further ease the pressure on individuals with serious financial commitments.
Anshuman Magazine, Chairman & CEO -India, South East Asia, Middle East & Africa, CBRE
The RBI’s move to cut repo rate by 0.4 basis points will have a positive effect on the residential property market. This is a clear step towards reducing lending rates, encouraging liquidity, preserving financial stability and supporting overall economic growth. The reduction in reverse repo rate will encourage banks to lend more and extension of moratorium on EMIs on term loans by another six months and steps to ease cashflow burden on borrowers will improve overall sentiments and market performance. It will also encourage consumers to borrow more from banks due to the lowering of lending rates. We welcome these announcements as they are directed towards infusing liquidity and strengthening consumption, thereby giving a push to economic recovery.
Chandrajit Banerjee, Director General, CII
It is encouraging to note that acting in lockstep with the government, RBI decided to cut repo rate by 40 basis points in order to provide the necessary impetus to growth which is expected to turn negative this fiscal. The RBI governor also said that evidence on transmission of rate cuts by banks to customers will be shared. Together with the slew of measures announced to alleviate the stress in financial markets, foreign trade and state government borrowings, it is heartening to note that the central bank once again proactively intervened with a bouquet of prudent steps.
Hardika Shah, Founder & CEO, Kinara Capital
The Moratorium extension will help some MSMEs but overall it will end up increasing the costs for small businesses who struggle to access capital. Clear guidelines on the applicability to NBFCs are still missing which will impact cashflow. The Moratorium could be effective if it is also extended to the NBFCs. However, clarity on this from the RBI is still lacking. The measure that will help the most in boosting the economy is a one-time restructuring being allowed which has not even been considered.
Ram Raheja, Director, S Raheja Realty
The announcement of 40 basis points to 4 per cent is a move directed towards the revival of the economy. The RBI should ensure that the benefits of the same is passed down to the end-consumers by the banks. This step will incentivise the banks to lend more, which inturn will give a boost to the currently flattened demand and infuse liquidity in the ecosystem. Also, the extended moratorium until August 2020 will give relieve the homebuyers going through trying times due to the pandemic. The real estate sector now positively look forward to the details of the promising announcement made by the governor with regards to conversion of the moratorium into a term loan. The Real estate as a sector is a major contributor towards the GDP and enabling measures to ease the complexities faced by the RBI will empower the Indian economy at large.
Manju Yagnik, Vice Chairperson, Nahar Group; Vice President, NAREDCO
With RBI announcing rate cuts, thus maintaining the ‘Accommodative Policy’ stance is a big positive as it indicates their intent to ease the EMI burden of the customers. This reduction in repo rate will encourage prospective homebuyers to move ahead with their plans of investing in a home, thus help in boosting the demand. It will also enable reviving growth in the long-term. RBI's has announced a cut in repo rate by 40 bps, from 4.4 percent to 4 percent and subsequently, the reverse repo rate cut by 40 bps to 3.35 percent. This will reduce the EMI burden of home buyers and discourage banks to park their additional funds with RBI, thus help increasing lending activity.
Veena Sivaramakrishnan, partner, Shardul Amarchand Mangaldas & Co.
While borrowers heave a sigh of relief, the Banks and financial institutions will continue to worry. Their access to committed cash flow continues to remain in suspension and in the already stretched system, banks will find it a challenge to meet the growing needs of financing, the demand for which will continue to be on an increase. With IBC suspension being on the anvil, while provisioning and asset classification benefits will extend, banks in India will continue to face a challenge with their assets, especially with the moratorium being further extended. The principle is that any relief to Borrower must commensurate with benefits to the bank. In light of this principle, a 6 month moratorium and the expected suspension of IBC, is likely to hurt the banking and finance sector further.
Virendra Somwanshi, MD & CEO, Motilal Oswal Private Wealth Management
It was a good effort policy by RBI though extension of moratorium is a short term measure and not really long term. Rate cuts and reverse repo rate cut are moves in the right direction but risk aversion by banks is still high. Even though one time loan restructuring would have led to credit rating issues, it would have been a step in the right direction which the market was expecting. Good for companies but banks/NBFCs will be hit in short term particularly when they are staring at higher NPAs. The benchmark yield has fallen by 10 bps and there is enough liquidity in the system.I would expect a more definite no on the GDP growth, announce measures to improve smooth transmission of liquidity through a OMO calendar and more sector specific measures.
Nish Bhatt, Founder & CEO, Millwood Kane International, an investment consulting firm
In a surprise move RBI's rate setting committee - the MPC met off cycle from May 20-22 and announced a slew of measures in light of subdued economic situation. This is the second timethat the MPC met off cycle. Like global central banks, RBI has been doing the heavy lifting in this fight against COVID19. The MPC announcing a 40 bps cut in repo rate from 4.4 percent to 4 percent will help boost lending activity, it will aid businesses looking for capital at a cheaper rate. Further cut in reverse repo will discourage banks to park its funds with RBI and help liquidity as banks will be forced to lend given lowered reverse repo rate. The fact that the policy stance remains Accomodative indicates central's bank intention to intervene if need be going forward.
Lincoln Bennet Rodrigues, Founder and Chairman, Bennet & Bernard Group
Today’s rate cuts along with the further extension of loan moratoriums by 3 months is definitely a welcome move and will benefit the real estate sector in the near future. It will enable banks to lend even more and push many fence-sitters onto the market as home loan interest rates are expected to fall down. The government has recently announced a slew of measures aimed at further easing the liquidity conditions and providing relief to borrowers and another extension of the moratorium will help borrowers struggling with liquidity problem. What needs to be seen is how quickly the banks pass on the benefits to the borrowers. All these steps augers well to cushion the impact of COVID-19 on the Indian economy.
Ashok Mohanani, Chairman, EKTA World; President-Elect NAREDCO, Maharashtra
After lowering a cut in repo rate by 75 basis points in the previous announcement, the MPC has today announced another cut on repo rate by 40 basis points from 4.4 percent to 4 percent followed by reverse repo rate at 3.35percent. The announcement will indeed act as a remedial measure to ail the economy as the government previously lent its support by providing a fiscal and monetary stimulus worth Rs 20.97 lakh crore. This move by RBI is expected to direct positively and reduce the cost of EMI on loans taken by the homebuyers. The investments in the sector will rise as the loans will be available easily. There will definitely be a surge in demand for homes as Buyers , including millennials and NRIs who were searching to have their own homes which they could customise will now be keen to take decisions of owning homes.
Dr Niranjan Hiranandani, President-Assocham and NAREDCO
Measures like the reduction in repo rate by 40 basis points, the extension of term loan moratorium till August 31 is an honest step to support several sectors hit by contraction of economic activity. Reserve Bank of India’s (RBI) 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. There has been a total collapse in demand in both urban and rural India since March 2020. The continued proactive measures taken by the RBI will help address these issues and revive the economy in the second half of the year.
Rohit Gera, Managing Director, Gera Developments Pvt Ltd
The move by the Reserve Bank is welcome however banks have been reluctant to reduce lending rates proportionately for similar actions by the RBI in the past. Mortgage rates have come down 50 to 70 basis points while the repo rates have dropped by over 200 bps. Unless the RBI strictly monitors and pushes banks to transmit these rates cuts to the borrowers, the move will not have the required impact on the economy. We need to drastically and aggressively lower interest rates to kick start the economy.
Ashish R Puravankara, Managing Director, Puravankara Limited
As of today, the entire industry, and not just Real Estate sector, is going through unpredictable challenges. In the last year, the Real Estate sector saw ebbs and flows and while the Q4 of FY1920 looked promising, we were hit by the global pandemic. At this point, it is very important to boost customer sentiments and the announcement by RBI today on revised REPO rate standing at 4% , and this along with the extension of moratoriums until August 31st will provide a relief to home buyers. The further reduction of the REPO rate by 40 bps will aid in ensuring adequate flow of capital in the market. We hope that all banks will incorporate the new announcements and pass down the benefits to loan seekers. While initiatives like this will certainly help in keeping the industry sentiments intact and motivate realtors, all the stakeholders of the sector should remain invested in bringing reforms and measures that will improve buyer sentiments."
Abhimanyu Sofat, Head of Research, IIFL Securities
The commentary of the governor speech underpins the low prospects of a V shaped recovery. RBI commentary indicate the stress in the economy on both demand and supply is likely continue. We also believe government should provide subvention on existing loans or bear some cost of the haircut of existing loans. This would ensure more confidence to banks to lend to lower rated entities or individuals.
Amit Jain, Co-founder & CEO, Ashika Wealth Advisors
The markets get disappointed with RBI today’s announcement as the market was expecting full-fledged one-time restructuring of the loan. Instead RBI only allowed 3 more months of moratorium till 31st August 2020. Today extended policy rate cut by 0.4 percent, may further bring down interest rates on fixed deposits and savings accounts. Due to less attractive rates, FII may reduce positions in Debt market, which might make India Inc suffer due to depreciation of currency in medium to long term. The banks and NBFCs operations might be at risk due to extended moratorium and less attractive deposit rates. The RBI also raises group exposure limit for banks from 25 percent to 30 percent till June 2021 which may not be very helpful as banks are reluctant to lend. It has also firmly accepted negative GDP growth rate in H1 of Financial Year 2021 which will be first time ever in independent India. This statement may put pressure on banking stocks in short term, as banks perform well in expansionary balance sheet rather than contrary balance sheet.
Aiswarya Ravi, Chief Financial Officer (CFO), Kinara Capital
Demand for credit is already there and will pick up in 2-3 months. The reduction in rates can help in lowering debt costs for last-mile NBFCs so they can provide better options to MSMEs. However, banks may not be incentivised to give to NBFCs because of the rate reduction. Whether the newly announced measures will help depends on the instructions provided for NBFC classification and banks’ willingness to lend to last-mile NBFCs.
Pankaj Sharma, President & Head – Corporate Planning & Strategy, Religare Finvest
It is a welcome step by the RBI. Reduction in repo rate by 40 bps to 4 percent will further complement the stimulus package announced by the government recently and expand much required liquidity in the system. Another 3 month extension on loan moratorium and permission to convert accrued interest on the moratorium into a funded interest term loan to be paid during the tenure of the loan, will ease the pressure on the lending entities, especially NBFCs. Allowing restructuring of loans till Mar’21 without downgrade of asset classification would have further helped ease situation for both borrowers and NBFCs/banks. We are hopeful that the RBI will address this issue soon. With ongoing collapse in both urban and rural demand, we believe that the decision of the MPC would create favorable recovery conditions for the economy. The accommodative policy maintained by the RBI is also encouraging as the central bank has indicated its willingness to go for further easing, if the situation so warrants.
Pranjal Kamra, CEO, Finology
The points emphasized by RBI Governor during his press conference today hinted towards the fact that India might be entering into a recession. The immense liquidity crunch created by Covid-19 along with drastically tanking demand in the economy have been tried to be addressed. The moratorium extension shall give a sigh of relief to the business owners because their income was badly hit during the crisis. Introduction of another repo rate cut in such a short span of time was a surprise. However, it is aimed at boosting the demand subjected to implementation by banks. But, if goes through, would bring the interest rates down for the end consumers. It’s an effort to neutralize (to a certain extent) the adverse impact on economy created by the pandemic.
Kamal Khetan, Chairman and Managing Director, Sunteck Realty Ltd
The 40 bps cut would give big boost to demand for credit appetite among new home buyers to avail housing loan resulting in growth of real estate sector. We believe the announcements will help sustain positive market sentiments and give maximum mileage to organized and established developers.
Hakim Lakdawala, Group Partner, Goodwill Developers
The ‘Atma-Nirbhar Bharat’ Movement announced by Prime Minister Narendra Modi highlights that the Government is taking cognizance of the situation and taking measures to mitigate the impact of COVID-19 on the economy. The decision of reducing the repo rate to 40 percent is a respite to businesses and shop owners as loss of revenue during the lockdown has been abundant. With the extension of the loan moratorium, individuals can sort out their finances easily without being under any stress or defaulting on any of their repayments.
Surendra Hiranandani, Chairman and Managing Director, House of Hiranandani
The moratorium on housing EMI’s and deferment of interest payments by another three months will give a lot of relief to consumers as they can now rearrange their finances. Another repo cut by 40 basis points to 4 percent is also a welcome move and with the cost of funds coming down for banks now, borrowers will stand to gain as the EMIs on their home loan are expected to fall. This is another big announcement which will ease liquidity for developers. However, quick transmission will be key to the huge liquidity infused by RBI. All these measures augurs well for the real estate sector during such trying times.
Suyash Choudhary, Head – Fixed Income, IDFC AMC
The monetary policy committee (MPC), reflecting the sign of times, had yet another out of policy meeting and delivered a 40 bps repo rate cut with commensurate changes to the rest of the rates in the corridor. In its assessment, the committee noted the further deterioration in growth prospects. Even as food prices have reversed trend and spiked substantially recently (food inflation was 8.6 percent in April as per the partial CPI data release), the assessment is that CPI will fall over the second half the year and will fall below the 4% target over quarters 3 and 4 of the financial year. Importantly, the forward guidance is strong noting space for further easing will open up if CPI behaves as expected.
Sathya Kalyanasundaram, Country Head and Managing Director, Experian India
The last few weeks have witnessed businesses and consumers face unprecedented circumstances which has impacted a number of macroeconomic indicators across the globe. In India, the Government and the RBI are continuing to introduce several initiatives to provide support to the industry and relief to consumers. Today’s RBI’s announcement was positive and balanced. The reduction in the repo rate by 40 basis points to 4% will encourage liquidity; which is a positive sign for businesses and financial institutions since it will enable a boost in consumption. The RBI has also extended the moratorium period for additional 3 months for all outstanding term loans and credit card dues. With the total moratorium period adding up to 6 months, this step will provide some respite to consumers affected by the Covid-19 pandemic. It is important to note that while opting for the moratorium will not affect the credit score negatively; interest will continue to accrue during this period.
Bhavesh Gupta, CEO, Clix Capital
Reduction of 40 bps in both Repo and Reverse repo rate will give the much needed liquidity boost extending affordable credit to consumers and MSMEs. Multi-year low rates coupled with moratorium extension will help restart the economic engine. For banks and NBFCs, moratorium may lead to an increase in NPAs in the long term and it would have been better had RBI also announced directions on one-time restructuring of loans and other support measures. Key continues to be implementation of various government stimulus fast and building confidence to lend especially to MSMEs.
Vikas Jain, Senior Research Analyst, Reliance Securities
The repo rate cut by the MPC is in line with the recent economic data warranted for an immediate cut, but the extended moratorium of 3 months pose some risks in possibility of rising NPA’s which has dragged the markets momentum and banking stocks to trade at day’s low. Nifty is holding the support levels of 8,950 on the downside and we expect the markets to be volatile next week with extended weekend and rollover movement in individual sectors and stocks with respect to the derivatives expiry. We remain positive on markets and decline near to 8,650-8800 levels are good support on medium term time frames.
Murali Nair, President–Banking, Zeta
I believe the RBI's steps will counter the fallout from the ongoing nationwide lockdown to contain the spread of coronavirus pandemic. These moves combined with fiscal stimulus already announced by the government will help us recover from the lockdown which has pushed the economy into a standstill, hurt businesses and landed thousands jobless. The combination of fiscal, monetary and administrative measures will create conditions that will enable a gradual economic revival. It is great to see the reduction in repo rate by 40 Bps to 4 percent along with the extension of the moratorium on loans. Through these unprecedented times, the decision to provide support through SIDBI to the MSME sector is also to be welcomed.
George Alexander Muthoot, MD, Muthoot Finance
We welcome the RBI announcement to cut the repo rate by 40 bps which will infuse liquidity into the system in such challenging times. Also, the reduction in reverse repo rates will discourage banks to park idle money with RBI and lend further. We appreciate the decision of extending the moratorium by three months thereby providing the much needed relief to the borrowers. It will help in reducing the repayment pressure and provide necessary time to analyze the cash flow status. We believe RBI measures will aid in restoring the financial health of the economy.
Sanjay Kumar, CEO & MD, Elior India
It is good that the RBI has commented on the slump in consumer demand. We now hope that a more aggressive fiscal stimulus combined with the monetary easing will help the demand growth. The crux of the economic recovery hinges on increasing demand at a macro level. Monetary easing alone will not yield the desired outcomes as stated by the RBI governor. The consuming class in India is essentially the taxpayers and hence, reducing taxes on consumption and income will not only stimulate demand but also help kick start the revival of key sectors like food, automobile and real estate.
Rajiv Agarwal, MD & CEO, Essar Ports
The RBI governor's assessment of the economy is perhaps closer to the ground reality. This is the right time for Government to start rolling out Infra spending plan of Rs 100 lakh cr in 5 years. Rs 15-20 lakh cr should be pumped in immediately. Defence and other central services can place orders to kick-start Auto sector. This will help spur consumption.
Deo Shankar Tripathi, MD & CEO, Aadhar Housing Finance
The RBI has announced various measures for the third time during the last two months to help the stressed economy due to long lockdown and disruptions of most of economic activities. Reduction in REPO and reverse REPO by 40 bps will further signal reduction in retail loans including housing loan rate and also some reduction in MCLR of banks. 3 months additional moratorium till August 20 is on expected lines considering extension of lock down delaying revival of income of business enterprises and Job losses. This is timely move to help customers in protecting from delinquency tag and lenders to protect asset quality. However this will adversely impact repayment culture and spike in delinquency is expected after expiry of moratorium. Lenders will have to keep in touch with all customers particularly those on moratorium to suitably communicate them to begin repayment after expiry of moratorium.
Anuj Khetan, Director, Vijay Khetan Group
The RBI has played its part but banks need to do theirs by transmitting the rate cuts to the consumers. The extension of the moratorium on loans by further 3 months would bring in some relief to the borrowers in this difficult situation. These measures will have a cascading effect on the economy by offsetting some pains of the salary cuts faced by employees as the biggest expense are the EMIs for everyone. RBI and the Finance Minister will need to work in tandem to bring in long-term economic measures to push businesses atleast in the first gear from neutral rather than giving piece meal solutions which are like temporary band-aids which will hurt even more when it will be ripped; pushing the economy in reverse.
Prithviraj Srinivas, Economist, Axis Capital
The RBI has delivered along expected lines by cutting policy rates by 40bp, extending moratorium by 3 more months and committing to ease financial conditions in the wake of India's first growth recession in nearly 40 years. However, we believe rising risk perception is holding back monetary transmission and hence rate cuts will not be effective. Excess liquidity in the banking system and fall in money market rates and some lending rates are not the barometers of improving financial conditions in this situation. Liquidity needs to reach every part of the economy even when it has become difficult to distinguish between good credit and bad credit. We believe that the RBI/public sector will need to stand ready to become lender of last resort, not just for banks, but all financial institutions.
Satish Magar, President, CREDAI
We expected more stringent measures from the RBI booster to revive the economy. Real Estate sector can act as a catalyst in resurrecting the economy, backed by stringent fiscal and non-fiscal measures. The move of moratorium extension is a short term piecemeal solution to a long term problem. The interest rate should be reduced with firm liquidity measures as this is the need of the hour backed by one-time restructuring of loans to help the real estate sector from crumpling. RBI has tried to ease the pressure on borrowers and has extended group exposure limit for lenders to corporates from 25 percent to 30 percent but this is not enough to solve the ongoing liquidity crisis. Government now needs to ensure that banks are forthcoming and are passing on the benefits to us currently, there is a dearth of income in the sector owing to the COVID crisis.
Mihir Vora, Director & Chief Investment Officer, Max Life Insurance
Continuing with the heavy lifting on stimulus measures, RBI announced repo (now 4 percent) and Reverse Repo (now 3.35 percen) rate cut by 40bps. The cumulative Repo reduction since COVID now stands at 115bps on the Repo and 155bps on the Reverse Repo. RBI’s growth projections factor in the sharp contractions seen in all high frequency indicators during the lockdown. RBI expects negative GDP prospects for FY21, with some recovery likely in H2FY2. It sees downside risks given the highly uncertain situation. The inflation outlook factors in high food inflation in the near-term led by supply side disruptions and CPI prints below 4 percent in H2FY21. On the regulatory measures, several announcements have been made to ease the pressure from lenders, borrowers, functioning of markets, support external trade, states that are grappling amid lockdown and ease the overall financial stress. The measures entail extension of the refinancing options and liquidity windows announced earlier on 27 March.
Anagha Deodhar–Economist, ICICI Securities
The MPC delivered yet another off-cycle rate cut, indicating the severity of the crisis and the urgency to deal with it. The important measures it took today i.e. rate cut of 40bps and extension of moratorium by 3 months shows that it expects the aftermath of the crisis to be deep and prolonged. Interestingly, the rate cut wasn’t unanimous this time, indicating committee members are questioning the effectiveness of monetary action in stimulating growth. The 40bps rate cut should ease the cost of credit further. However, in the absence of demand for credit and extreme risk aversion among banks, we remain doubtful about its effectiveness in stimulating growth. We expect the various regulatory measures taken by the RBI such as measures to support exports and imports, extension of moratorium, easing of working capital financing etc. to support the sectors that have been badly affected. These measures should cushion the stress faced by these sectors going forward. Also, rate cuts and liquidity infusion are likely to support growth in FY21.
B Mallikarjun Gupta, Chief Taxologist, Head-Cloud Business, Logo Infosoft
The measures taken by the government from time to time to bring back the economy on track and as part of it have announced a slew of policy measures through RBI to make funds for accessible to the trade and industry. The reduction of the Repo Rate for the second time in 60 days will give a boost to the economy and generate more jobs.
More liquidity provided to the trade and industry as the moratorium is extended by another three months and the conversion of the interest into a funded term loan, and the same must be paid by 31st March 2021. This will infuse a lot of liquidity in the market and give legroom for the MSMEs to meet their operational expenses and spend on SAS products to improve their operational efficiency.
Kumaresh Ramakrishnan, CIO, Fixed Income, PGIM India Mutual Fund
For the second time in two months, RBI at an off-cycle MPC meeting, cut key rates by 40 bps. The reverse repo, which given the surplus liquidity is now the effective operative rate, stands reduced to 3.35 percent. The RBI maintained its accommodative stance with a promise to ease further as it expects inflation to fall below 4% in H2. Outlook for growth remains weak with contraction expected in H1FY 20 and a slight reversal in H2. Moratorium to borrowers has been extended for another 90 days in keeping with the lockdown taking the total to 180 days. Surplus liquidity, a dovish stance and weak growth conditions should pave the way for further rate easing in the months ahead, causing yields to rally. Given this background we remain overweight on high grade short term funds with duration in the 3-4 years.
Rajosik Banerjee, Partner and Head - Financial Risk Management, KPMG in India
With a rate cut by 40 bps, extension of moratorium and deferment by additional 3 months to August; and phasing the interest burden by converting it to a funded interest term loan repayable in the current year as against bullet repayment in June, will definitely reduce pressure on cash flows and liquidity for entities. Additionally, increase in Group exposure limit to 30 per cent will provide headroom for additional credit required by large corporates. With the current slowdown and an expected negative GDP growth rate, it will be important to see the last mile transmission of these monetary announcements.
R K Gurumurthy, Head-Treasury, Lakshmi Vilas Bank
The RBI announced a surprise 40 basis Repo Rate cut, taking the official rate now to 4.0 percent and at 3.35 percent, the Reverse Repo rate is at its lowest. Demonstrating remarkable nimbleness and responding to the evolving crisis due to extended lockdown, the cut in rates and other attendant measures should address the demand side by boosting consumption and disincentivising savings. While expectations of further rate cuts of atleast 75 basis during the FY was rife, the timing and guidance will have a telling effect on rate transmission and buttressing supply side measures. After the series of announcements last week primarily as an economic rescue package to thwart the deleterious effects on growth, today’s rate cut is more a front loaded monetary measure in an environment where inflation is likely to remain low.
D K Srivastava, Chief Policy Advisor, EY India
In tandem with the recent fiscal package, the monetary policy wheel has also been rolled again with the RBI announcing a reduction in the repo rate by 40 basis points, bringing it down to a historical low of 4 percent. Along with it, the other relevant rates such as the reverse repo rate, the bank rate and the Marginal Standing Facility (MSF) rate have also been lowered by a similar margin. This will enable both the consumers and investors to borrow at a lower cost thereby facilitating an increase in both consumption and investment demand. According to information given by the RBI, the reduction in the weighted average lending rate on fresh rupee loans has been 114 basis points during February 2019 to March 2020. In the same period, the reduction in the policy rate was 210 basis points, indicating that the transmission rate stands at about 54 percent. The enhanced liquidity resulting from the current and earlier monetary measures may also keep the borrowing cost for the central and state governments from rising up inordinately given their increased targets.
Dr Raghupati Singhania, Chairman & Managing Director, JK Tyre & Industries Ltd
The RBI's announcement of cutting both repo rate and reverse repo rate by 40 bps to 4.00 percent and 40 bps to 3.35 percent respectively is a welcome step and should encourage the Indian banking system to lend liberally at this time of Corona Pandemic crisis which has engulfed the manufacturing sector in particular. The rate cut combined with the further extension of loan moratoriums by three months is a very positive step for the industry. While these are welcome measures by the RBI, it is now crucial that rate cut gets transmitted by way of lower rate of interest to the corporates and lending by the banking system goes up substantially to somewhat mitigate the immediate concerns related to liquidity. However, it is critical to take effective steps to generate demand through industry specific measures.
Sushil Mohta, Chairman, Merlin group and President, Credai, West Bengal
Rates on Home Loans,construction loans, and loan against rental must be reduced. An industry which provides millions of jobs and revenue is completely ignored. Very disappointing.
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Delhi had reported 377 new Covid cases and one more death on Monday, while the positivity rate was 3.37 percent