Money & Banking

RBI cuts repo rate by 75 basis points

Our Bureau Mumbai | Updated on March 27, 2020

Reverse repo rate slashed by 90 bps

To help the economy fight the Covid-19 pandemic, the Reserve Bank of India (RBI) on Friday slashed the repo rate by 75 basis points to 4.40 per cent from 5.15 per cent.

Simultaneously, the reverse repo rate has been been cut sharply by 90 basis points to 4 per cent from 4.90 per cent, to ensure that banks don't passively park funds with RBI and start lending to the productive sectors of the economy.

CRR cut

The banking system will become flush with liquidity aggregating ₹3.74 lakh crore as the Reserve Bank of India (RBI) has, among others, decided to cut the cash reserve ratio (CRR) to 3 per cent from 4 per cent and decided to conduct more long-term repo operation (LTRO).

CRR cut, which will be effective for a year, will result in infusion of primary liquidity for banks aggregating ₹1.37 lakh crore.

Breather for borrowers

RBI has also declared a three month moratorium on payment of instalment on all term loans. It also allowed deferment of servicing of working capital loans (cash credit/ overdraft) for three months.

These measures, which are aimed at helping borrowers and banks tide over the crisis arising from the Covid-19 pandemic, will not lead to asset classification downgrade, said Governor Shaktikanta Das.

The moratorium/ deferment will be available for loans outstanding as on March 1, 2020.

Growth prospects

RBI had refrained from making any projections for growth and inflation saying the performance of these two key macroeconomic parameters in the days ahead would depend upon the intensity, spread and duration of COVID-19.

Announcing the decisions of the Monetary Policy Committee (MPC), RBI Governor Shaktikanta Das said that no projection for growth and inflation was being given in view of the uncertainty created by outbreak of the deadly novel coronavirus (Covid-19).

Das further said that the growth projection of 4.7 per cent for the fourth quarter of 2019-20 and 5 per cent for the whole fiscal was at risk.

On the global economy, the governor said that slowdown could deepen impacting the growth prospects everywhere in the world.

As regards India, Das said, growth and inflation would be contingent on intensity, spread and duration of Covid-19.

The Reserve Bank in its monetary policy usually provides projections for growth and inflation.

(Inputs from PTI)

Published on March 27, 2020

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