RBI’s Off-Cycle Meeting of The Monetary Policy Committee (MPC)

RBI decided to prepone its meeting of Monetary Policy Committee (MPC) today, May 22, 2020, which was earlier scheduled for June 2020 because of the current situation and distress caused by the Coronavirus.

As Governor Mr. Das, mentioned in his statement,

COVID-19, a virus of the size of 0.12 microns, has crippled the global economy, with more than 300,000 dead and economic activity across the world stalled. Once again, central banks have to answer the call to the frontline in defense of the economy.

Therefore he announced few relief measures to defend the economy, In the first part of his statement he announced a reduction in the policy rate by 40 basis points from 4.4% to 4% as per the discussion and voting of MPC with the majority of 5-1 for this decision.

Reduction In Policy Rates as follows:

• Repo Rate reduced from 4.4% to 4%
• Marginal Standing Facility (MSF) rate and the Bank rate stand reduced to 4.25% from 4.65%.
• Reverse Repo Rate stands reduced to 3.35% from 3.75%.

This reduction of policy rate announcement is positive for bondholders or debt fund investors because it will increase the prices of existing bonds in the market resulting in the increase of NAVs of various debt funds.

Along with this he discussed the global and domestic market assessment of how the COVID-19 has impacted the economy globally as well as domestic.

Later on, discussed the outlook followed by the Regulatory and Developmental Measures which we will discuss in this post,

Regulatory and Developmental Measures

Measures announced today can be broadly described under 4 categories.

1. Measures to improve the functioning of markets and market participants;
2. Measures to support exports and imports;
3. Efforts to further ease financial stress caused by COVID-19 disruptions by providing relief on debt servicing and improving access to working capital; and
4. Steps to ease the financial constraints faced by state governments.

Whereas, for an individual what is of more benefit is the 3rd Category which focusses on efforts by RBI to easing the financial stress caused by COVID-19 led lockdown to an individual.

RBI earlier announced following regulatory measures to ease the financial stress,

• Granting of 3 months moratorium on term loan installments;
• Deferment of interest for 3 months on working capital facilities;
• Easing of working capital financing requirements by reducing margins or reassessment of the working capital cycle;
• Exemption from being classified as ‘defaulter’ in supervisory reporting and reporting to credit information companies;
• Extension of resolution timelines for stressed assets
• Asset classification standstill by excluding the moratorium period of 3 months, etc. by lending institutions.

In view of the extension of lockdowns due to coronavirus, RBI announced today to extend the above measures by another three months from June 1, 2020, till August 31, 2020, taking the total period of applicability of the measures to six months (i.e. from March 1, 2020, to August 31, 2020).

This extension will be of much relief to many people who are severely impacted by this coronavirus led lockdown. 

Though it is not advisable on the first hand to an individual investor to opt for a moratorium of EMIs, though in many cases people are severely impacted and facing an extreme cash crunch then it is a great relief for them.

(Source: rbi.org.in)