The regular meetings and decisions are thereon taken through MPC (Monetary Policy Committee ) meet hints about the performance of the economy of the country and steps considered for the next course of action. The RBI, following the PM Modi’s Govt. announcements, has announced on 22nd May 2020 the relaxations, assistance and current performance indicators of the economy of India which throwing all through an is an off-cycle meeting.
The Bank head Shantkta Dass announced several measures and factors contributing such decisions, followed by remarks of Father of Nation, The Governor states said: “It is when the horizon is the darkest and human reason is bitten down to the ground, that faith shines the brightest and comes to our rescue.”.
In this write-up, we shall now discuss and highlight the key takeaways from the unanimous decisions of members of the committee:
- To keep a check on the inflation, to revive growth and mitigate the impact of Covid-19, with immediate effect he stated for :
o for a reduction in policy repo rate to 40 bases to 4 percent,
o Revised Marginal standing facility @4.25 percent,
o Revised Reverse Repo Rate (RRR) @ 3.25 35 percent.
- Committee decided the decision to extend the moratorium period to further 3 months i.e., from June 1st2020 to August 31st2020. The extension period is applicable to defaulter classification and asset classification.
- The interest facilitated on working capital can be termed and deemed as a short-term loan that can be paid till 31st March 2021.
- The maximum permissible period (MPP) for pre and post-shipment of export credits increased from 1 year to 15 months, therefore, extension in period by 3 months.
- The lending institutions (LIs) are allowed to revive margins on working capital to the origin level by March 31st 2021.
- The Bank announced a refinancing facility of Rs.50000 crore through all India financial institutions such as NABARD, SIDBI, and NHB.
- Extension of the time period by 3 months for Foreign Portfolio Investors (FPIs) to comply with 75% investment within 3 months.
- Extension of time-period under the special refinancing facility by 90 days to SIDBI of Rs.15000 crores.
- The extension of time-period for compliance of outward remittances completion in case of normal imports extended to 12 months from 6 months.
- The group exposure limits of banks increased from 25% to 30% of the eligible capital base until June 2021.
- The Rules relating to withdrawal from the consolidated Sinking Fund by State Government have been relaxed with an aim to relax the funding requirements.
Estimations & Key Consideration for Decisions:
The economy has headed towards a great recession like situation as a domestic activity has been excessively hampered as top 6 industrialized states in India that account for 60% of output for India is in Orange and Red zone.
– The estimation that GDP shall be in the negative zone for FY 2020-21.
– The decline in double money in terms of both demand and supply has affected negatively fiscal revenues.
– Investment demand halted for approx. 25% of impacting imports. Similarly, the decline in the production and manufacturing sector plunges the export level reflecting a decline in core production, PMI recorded during this period is 27%, highest low during such a short time period.
– The plunge in the services, PMI declined to 5% amid the Covid-19 period since March 2020.
– Agriculture and allied activities have provided a ray of hope as an increase in food production by 7%. The data reflects that Kharif sowing and rabi crop is higher than before.
– The people across boundaries are facing intense situations during the Covid-19 period and in India, Government takes is taking significant steps under the guidance of RBI., a pre-defined role of RBI. Simultaneously, RBI also took decisions for regulating the financial market vis-a-vis the economy keeping inflation in check. It is crucial that timely assistance be provided to revive the economy from this Pandemic situation in the country individually and collectively by all authorities at Central Level as well at as State Level.
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