RBI cuts down repo rate by 75 points and a 3-month moratorium on EMIs

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The Governor of Reserve Bank of India (RBI) Shaktikanta Das announced a slew of measures including a repo rate cut and 3-moths moratorium on all EMIs to combat the Corona impact on the country’s economy.

It is significant to note that the RBI’s announcement has come especially a day after the Union Finance Minister Nirmala Sitharaman introduced Rs 1.70 lakh crore economic relief package for the benefit of 87 lakh people in the country. “The need of the hour is to do whatever is necessary to shield the domestic economy from the pandemic,” the governor said.

Here are the key highlights of his address:

  • RBI has cut repo rate by 75 basis points from 5.15 per cent to 4.4 per cent.
  • The reverse repo rate has been reduced by 90 basis points to 4 per cent so that banks are incentivised to lend.
  • According to the RBI governor, hopes of a shallow recovery in 2020 have been dashed and there is a rising probability that large parts of the world will slip into recession.
  • The cash reserve ratio (CRR) of all banks has been reduced by 100 basis points to 3 per cent of net demand and time liabilities, with effect from the fortnight beginning 28 March for a period of one year.
  • Lending institutions have been allowed to place a three-month moratorium on the payment of term loan instalments EMIs.
  • The moratorium and the deferring of interest on working capital will not be classified as default and will not impact the credit history of the borrower.
  • With these measures, RBI says it will inject liquidity worth Rs 3.74 lakh crore into the financial system.
  • “Finance is the lifeline of the economy, keeping it following is the paramount objective of the Reserve Bank of India at this point of time,” the RBI governor said.
  • According to Das, “it would be fallacious to link share prices to the safety of deposits. Depositors of commercial banks including private sector banks need not worry about the safety of their funds.”

On Thursday, announcing the ‘Pradhan Mantri Gareeb Kalyan Yojana’, Sitharaman pledged Rs 1.7 lakh crore to those worst-affected by the outbreak and the 21-day countrywide lockdown that has been imposed to contain its spread.

“We have come with a package which will take care of the welfare concerns of the poor, migrant workers and those who need immediate help,” she had said at the press briefing. “The announcements will improve liquidity, reduce the cost of funds, help middle class and businesses,” he wrote on Twitter.

Those welcomed the RBI Governor’s announcement include Prime Minister Narendra Modi, Finance Minister Nirmala Sitharaman. The Finance Minister tweeted that: “The 3-month moratorium on payments of term loan instalments (EMI) & interest on working capital gives much-desired relief. They slashed interest rate needs quick transmission”.

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