RBI cuts Repo Rate to 4.4% to revive economy amid coronavirus crisis

Daniel Fowler
March 27, 2020

The benchmark repurchase rate was lowered by 75 basis points to 4.40 per cent from 5.15 per cent, Governor Shaktikanta Das said on Friday (March 27) after an emergency meeting of the rate-setting panel.

"Moratorium on term loan, deferring of interest on working capital will not classify as default, will not impact credit history of the borrower", the RBI said.

Das announced a sizeable reduction in the policy repo rate and maintaining accommodative stance as long as necessary, while ensuring inflation remains within target.

The RBI asked all lending institutions to allow three-month moratorium on EMI payments in order to infuse liquidity into the system as the economy grapples with Covid-19 challenges.

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 also reduced the cash reserve ratio (CRR) of all banks by 100 basis points to 3 per cent with effect from March 28 for 1 year. He said that the reverse repo rate has been decreased by 90 basis point to make it unattractive for banks to park money with RBI.

RBI permits all lending institutions to allow 3-month moratorium on payment of installments on term loans.

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The Reserve Bank of India cut interest rates in an unscheduled move, joining central banks around the world in boosting stimulus to counter the economic impact of the coronavirus outbreak.

RBI Governor said his address was coming amidst "extraordinary circumstances".

"Priority is to undertake strong and purposeful action to protect the domestic economy, Need for all stakeholders to fight against the pandemic and banks should do all they can to keep credit flowing". Along with today's measures liquidity measures equal to 3.2 percent of GDP, Das said. Net Stable Funding Ratio (NSFR) was required to be introduced from April 1, 2020.

Das also assured that the banking system in India safe.

Incremental CCB (capital conservation buffer) implementation deferred from 30 March, 2020 to 30 September 2020. "I would, therefore, urge members of the public as well as various public authorities who have deposits in private sector banks not to resort to any panic withdrawal of their funds.Their funds are safe", said Shaktikanta Das.

"Large sell offs in markets have intensified pressure".

The informal sector, the backbone of the economy, will be hardest hit as economic activity comes to a standstill. The MPC voted 4:2 for the rate cut.

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