India’s central bank holds rates on inflation risk, but further easing seen

MUMBAI (Reuters) – India’s central bank kept interest rates on hold on Thursday as it sought to contain a rise in retail inflation, although it pledged to keep policy loose enough to help revive growth in coronavirus battered economy.

FILE PHOTO: CCTV cameras sit above the logo of the Reserve Bank of India (RBI) inside its headquarters in Mumbai, India, February 7, 2019. REUTERS/Francis Mascarenhas

Reserve Bank of India (RBI) Governor Shaktikanta Das said there was still room for monetary policy easing but the central bank would ensure inflation remained within its range. target range.

To ease pressures on corporate and lender debt, the RBI said it would allow the restructuring of corporate and personal loans by banks, a move widely expected by the industry.

The pension rate INREPO=ICE was left at 4.0% and the repo rate INRREP=ICE to 3.35%, against a median forecast of a 25 basis point decline in a Reuters poll.

The RBI has already cut the repo rate by a total of 115 basis points since February, on top of the 135 basis points during an easing cycle last year.

“Given the uncertainty surrounding the inflation outlook and the extremely weak state of the economy amid an unprecedented shock from the ongoing pandemic, the MPC has decided to keep the policy rate unchanged,” Das said.

However, the committee unanimously decided to maintain its accommodating policy “as long as necessary to revive growth”.

The country was placed at the end of March under one of the strictest confinements in the world for more than two months to stop the spread of the coronavirus. The government gradually eased restrictions in June, although infections continued to rise.

“While today’s decision surprised us, we believe the easing of the economy amid a falling inflation rate will provide MPCs with the space to cut the policy rate by 25 to 50 basis points. basis in S2FY21,” said Garima Kapoor, economist at Elara Capital.

Retail price inflation in June rose to 6.09%, which is above the RBI’s prescribed target range of 2% to 6%.

DEBT RESTRUCTURING

To help banks at a time when bad loans are expected to nearly double, the RBI said it would allow one-time loan restructuring.

Das said that under the current bad debt resolution framework, a window would be provided for lenders to implement a corporate loan resolution plan without a change in ownership while allowing these to remain standard and not be downgraded.

Lenders will need to provide an additional 10% provisioning for restructured accounts.

“The RBI easing is intended to ensure that a viable developer, only impacted due to the COVID pandemic, can pursue their entrepreneurial spirit and pave the way for the resolution of financial distress within two years. “said Veena Sivaramakrishnan, Partner, Shardul Amarchand Mangaldas & Co, a law firm.

Restructuring loan programs have also been authorized for loans to individuals and small businesses. In the case of personal loans, the restructuring can be extended for two years. For small businesses, the restructuring plan already in place will be extended until March 31, 2020.

“Removing the loan moratorium and announcing a responsible program to restructure distressed assets is both prudent and wise from a financial stability perspective,” said Rupa Rege Nitsure, chief economist at L&T Financial Holdings.

Das said RBI is setting up a committee under KV Kamath, the former head of New Development Bank, set up by the BRICS to give recommendations on required financial parameters, as well as specific benchmark ranges. to the sector which must be taken into account in the resolution. plans.

“The pandemic poses a challenge of epic proportions. We will remain vigilant and vigilant and collectively do whatever is necessary to revive the economy and preserve financial stability,” Das said.

Additional reporting by Devjyot Ghosal and Zeba Siddiqui in New Delhi, Abhirup Roy in Mumbai, Sachin Sai, Nivedita Bhattacharjee and Chris Thomas in Bangalore; Editing by Jacqueline Wong

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