The MPC cut the repo rate by 75 basis points, and initiated liquidity measures to deal with the economic impact of the COVID-19 outbreak.... Read More
Reserve Bank of India (RBI) governor Shaktikanta Das March 27 announced a massive 75 basis points cut in repo rates as a measure to counter the economic slowdown caused by the COVID-19 pandemic.
The reverse repo rate has been cut by 90 basis points to 4 percent. Das said this has been done to make it unattractive for banks to passively deposit funds with the RBI and instead lend it to the productive sectors.
The RBI rate cut comes just a day after Finance Minister Nirmala Sitharaman announced a Rs 1.7 lakh crore relief package for the poor.
The economy has been battered by the coronavirus (COVID-19) pandemic and governments across the globe have taken measures to combat the impact.
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Among the expectations include a 25-50 bps rate cut, NPA forbearance and more liquidity easing measures. The extent of a rate cut will be a signal that the central bank has our backs, experts believe.
Central bank has tried to ensure that viable businesses don’t go bankrupt owing to cash flow problems. But the jury is out on whether it needs to do more, writes Moneycontrol's Ravi Krishnan Read More here
Steps announced by RBI will reduce interest burden on businesses/industries and will boost economic activities: Union Minister Prakash Javadekar
The RBI governor’s statement that ‘whatever steps are necessary—all instruments, conventional and unconventional are on the table’, raises the hope that further steps will be taken down the road, if problems persist.
Money markets were facing pressures from redemptions by mutual funds. The Targeted Long-term Refinancing Operations (TLTRO) will give cash to banks, which they are supposed to invest in investment-grade bonds, commercial paper etc. This will be reassuring for the money markets, ensuring they don’t seize up.
Moratorium on payment of instalments on term loans will help people to postpone payment of EMIs and help their cash position. This will support cash flows of firms too. The same goes for deferment of interest on working capital loans.
The 100 basis point cut in cash reserve ratio (CRR) means more money with banks, especially private sector banks. Some of them had to access the wholesale funding markets, making CD rates go up. Greater access to MSF (Marginal Standing Facility) will also give banks more access to funds. The move will ensure financial stability.
The 75 basis point cut (One basis point is a hundredth of a percentage point) in repo rate is a powerful signal no doubt, aimed at lowering the cost of funds. Problem is it is of limited use in the lockdown. Yet, the interest on floating rate housing loans will come down, helping household cash flow.
Way to go: progressive and timely measures by Shaktikanta Das by giving 3 month moratorium on payments of term loan instalments (EMI) and much-desired relief on interest on working capital. Slashing repo rate and reverse repo rate will infuse liquidity. Big, bold steps: Amitabh Kant, CEO, Niti Aayog
It is a good move that will help enhance the liquidity levels for banks but in my view, banks were liquid enough. Apart from forbearance, was expecting measures to be introduced on turnaround of stressed assets including making June 7 SLA mandatory given NCLT issues. Given foreign funds would not be forthcoming, RBI should allow banks to earmark funds for rescue financing as it is likely to get expensive which should have NPA forbearance for two years for restructuring under the June 7 2019 circular: Abizer Diwanji, Partner & Leader Financial Services - EY India
