Coronavirus impact: RBI unexpectedly slashes repo rate by 40 bps, moratorium on loans extended to Aug 31

The Reserve Bank of India (RBI) on Friday reduced repo rate by 40 basis points to 4 per cent in an effort to further boost liquidity in the economy which has been reeling under the impact of Covid-19 induced countrywide lockdown.

RBI Governor's address https://t.co/lgJvUP91iE

- ReserveBankOfIndia (@RBI) May 22, 2020

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.

Three-month moratorium we allowed on term loans&working capitals we allowed certain relaxations. In view of the extension of the lockdown&continuing disruption on account of #COVID19, these measures are being further extended by another 3 months from June 1 to Aug 31: RBI Guv pic.twitter.com/YKulKb9bD0

- ANI (@ANI) May 22, 2020

The Group Exposure Limit of banks is being increased from 25% to 30% of eligible capital base for enabling the corporates to meet their funding requirements from banks. The increased limit will be applicable up to 30th June, 2021: RBI Governor Shaktikanta Das pic.twitter.com/J5rDTAyULV

- ANI (@ANI) May 22, 2020

Besides, the Apex bank took other major decisions keeping in mind the devastating economic impact of Covid-19 pandemic. In one such decision, the Reserve Bank extended the moratorium on interest payments on all term loans for another three months.

It also allowed for repayment of accumulated interest on account of the moratorium through FY21.

Furthermore, Governor Das noted that pandemic has had a crushing blow to the demand.

"High frequency indicators points to collapse in demand in March, the Governor said.

Das observed that investment demand has virtually been halted. He, however, said that agriculture.

He added the MPC will maintain accommodative stance, therefore, leaving further for more policy action.