Coronavirus: Day after Centre's economic package, RBI cuts repo rate

S Naren

S Naren

The Governor of the Reserve Bank of India, Shaktikanta Das, on Friday announced a massive 75 basis points cut in repo rates as part of a sslew of measures to counter the economic slowdown caused by the coronavirus pandemic. Das said lenders can allow a three-month moratorium on internet payments on working capital facilities and on term loans, all lenders can allow three-month moratorium or repayments.

Repo rate is the rate at which a country's central bank lends money to commercial banks, and reverse repo rate is the rate at which it borrows from them.

The central bank advanced its monetary policy committee meeting which was to happen next week, and voted for "a sizable reduction in the policy repo rate and for maintaining the accommodative stance of monetary policy as long as necessary to revive growth, mitigate the impact of COVID-19 while ensuring that inflation remains within the target", RBI Gov. Shaktikanta Das said.

It cut the repo rate by 75 basis points to 4.40%, in line with expectations.

The Governor said that the Reserve Bank has permitted all lending institutions to allow a 3-month moratorium on payment of installments on term loans.

According to historical data since 2003 provided by RBI, the lowest interest rate was 4.75% from 2009 to 2010, just after the global financial crisis. He stressed upon the need to keep the credit flowing to the stressed areas of the economy.

Indian banking system "safe and sound": The Governor also said that the Indian banking system is "safe and sound" and depositors should not resort to panic withdrawal of their deposits. He urged those with deposits in private banks to not indulge in panic withdrawal.

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Net Stable Funding Ratio (NSFR) was required to be introduced from 1 April, 2020.

Incremental CCB (capital conservation buffer) implementation deferred from 30 March, 2020 to 30 September 2020.

"Large sell-offs in markets have intensified pressure".

Das said MPC understands that global economic activity has come to a standstill due to the pandemic.

On March 26, the government announced a mix of measures including direct cash transfers and distribution of free food grains for a period of three months to help the economically weaker sections of the society tide over the crisis phase. Market expects anywhere between 25-50 basis points rate cut in key rates.

RBI calls war Make no mistake, it is a fight never seen before, the RBI governor warned while outlining the risks to Indian economy from coronavirus. All six members of the MPC voted in favour of the pause, leaving the repo rate unchanged at 5.15 percent.

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