The RBI have further lowered the repo rate along with other concrete measures. What are they and what impact would it make on the economy?
The RBI has once again stepped up at the right time with measures that will reduce the cost of capital and ease the financial burden on businesses due to the extended lockdown.
With repo rate cut of 40 basis points, the RBI has reduced 1.15 percentage points from the rate in the 58 days since the lockdown began, bringing the repo rate down to 4% and the reverse repo rate to 3.35%.
It is believed that the latest cut may be no more than a sentiment booster as economic activity is at its low and there are not many investment proposals on the anvil that may benefit from the lower interest rate.
Existing borrowers may be the only beneficiaries of the rate cut at this point in time.
A large proportion of commercial borrowers have availed themselves of the moratorium but retail borrowers have not taken to it in a big way.
The RBI has also shown empathy by allowing accumulated interest on working capital loans to be converted into a term loan repayable by the end of this fiscal.
Borrowers would otherwise have been faced with the daunting prospect of paying up their interest dues in one shot at the end of the moratorium period.
The extended period given may however still not be enough as it will offer borrowers only about seven months from the end of the moratorium period during which they will have to crank up their businesses and service their loans.
The RBI could have put off accumulated interest repayment by one year; it might well find itself in a situation where it is forced to offer another extension in the next few months.
There was some disappointment in the markets that the RBI did not relax norms for loan restructuring by lenders.
