RBI cuts repo rate by massive 75 bps, maintains accommodative stance
The Reserve Bank of India on Friday cut the repo rate by 75 basis points, in the wake of extraordinary circumstances created by coronavirus outbreak
The Reserve Bank of India on Friday cut the repo rate by 75 basis points, in the wake of extraordinary circumstances created by coronavirus outbreak. After the latest rate cut, the repo rate has been brought down to 4.4 per cent from 5.15 per cent, earlier. The RBI also reduced the reserve repo rate by 90bps to 4 per cent in order to ensure that the banks lend funds to productive sectors.
Addressing the media online, RBI governor Shaktikanta Das said that while all members agreed to a repo rate cut, there was a disagreement about its quantum. Eventually, the rate was reduced by 75bps with 4 to 2 majority voting. The RBI has also maintain accommodative stance on the Indian economy, saying that it will be maintained for as long as required.
Das said that we are living in extraordinary situation and war effort needs to be mounted against coronavirus using conventional, unconventional tools. He said that time has now come for the RBI to launch an array of arsenals to mitigate the impact of Covid-19.
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The RBI governor admitted that finance is the lifeline of the economy and the world is dealing with a tricky situation. He said that strong fiscal measures are critical. Das said that in these tough times, slump in crude oil prices could provide some relief.
“RBI’s announcement today is a welcome measure for the economy and has allayed a lot of concerns that the industry has been discussing. The measure on moratorium of 3 months on term loans, deferment of interest on working capital loans and reassessing working capital limits without impacting the asset classification will help the Banks in maintaining the credit quality in the short term, while providing the much needed liquidity to the borrowers in this period of uncertainty. Further measures on reduction in CRR, policy rate cuts and the long term repo operations are expected to provide much needed liquidity to the Banks in the immediate term. Deferring the compliance with capital conservation buffer and the net stable funding ratio will also further ease the pressure on bank’s Balance sheets. Along with the swift and timely action taken a close monitoring of the evolving scenarios is critical if any further tweaks are required. It is critical that the Bank’s operational capabilities respond quickly in implementing these measure, while ensuring effective communication with their customers,” Himanish Chaudhuri, Partner, Deloitte India said.
The Reserve Bank of India’s monetary committee policy was scheduled between March 29 and April 3, with Das’ address scheduled for the later date. However, it was advanced due to the coronavirus outbreak.
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