The Reserve Bank of India (RBI) on Friday reduced the repo rate by 40 basis points to 4 per cent and extended the loan repayment moratorium for another three months up to August 31.
As a result, the reverse repo rate stands at 3.35 per cent, said RBI Governor Shaktikanta Das. The six-member monetary policy committee (MPC) voted 5:1 in favour of the decision.
Repo rate is the rate at which a country's central bank lends money to commercial banks, and the reverse repo rate is the rate at which it borrows from them.
With GDP growth in the current financial year expected to be in negative territory due to COVID-19 crisis, there has been a collapse in urban and rural demand since March.
A gradual revival of economic activity and demand is expected by the second half (October 2020 to March 2021), said Das adding the central bank is ready to use all its instruments to address the dynamics of an unknown future.
He said the volume of world trade can shrink by 13 to 32 per cent this year.
The Governor said the group exposure limit of banks is being increased from 25 to 30 per cent of eligible capital base for enabling the corporates to meet their funding requirements from banks. The increased limit will be applicable up to June 30, 2021.
Das said that food inflation which had eased from January 2020 peak in February and March has now surged to 8.6 per cent in April.
However, agriculture and allied activities have given a beacon of hope for the country with a forecast of normal south-west monsoons.