Expressing concern over the unprecedented crisis in the economy due to Corona virus, the Reserve Bank of India has reduced the repo rate by 75 basis points. Giving this information, Central Bank Governor Shaktikanta Das said that the monetary policy was reviewed ahead of time due to the Corona virus crisis. He has also announced a reduction in reverse repo rate by 90 basis points.
RBI Guv Says:
-Repo cut by 75 bps to 4.4%
-Reverse repo cut by 90 bps to 4%
-Hopes of shallow recovery in 2020 dashed
-India’s GDP growth of 5% at risk
-High likelihod of global recession
-RBI to conduct auctions of LTRO of upto 3 yr tenor upto Rs 1 lk cr
-First auction of Rs 25,000 cr will be conducted later today
-Cut Cash Reserve Ratio (CRR) by 100 bps to 3% wef March 28 for 1 year for all banks
-Rs 1.37 lk cr to be released via CRR cut
-1-time dispensation: Minimum daily CRR balance cut from 90% to 80% wef March 28
-Liquidity infusion of Rs 3.74 lk cr via the three steps announcement – LTRO, CRR & MSF
-Mitigating debt servicing burden to prevent transmission of financial stress to real economy, provide relief to borrowers
-Permitted to allow 3 month moratorium for all lending institutions!
-3-month moratorium on payment of installments of loans outstanding on March 1, 2020
-With the liquidity measures: RBI’s liquidity measures works out to 3.2% of GDP
-Depositors of commercial banks including pvt banks need not worry on the safety of their funds
What is repo rate and reverse repo rate?
Repo is the rate at which the Reserve Bank lends to other banks. The reverse repo rate is the rate at which the Reserve Bank pays interest on the funds held by banks. Banks borrow from the Reserve Bank when the demand for loans increases and when they have more money, they deposit it to the RBI. On doing this, they get interest from the Reserve Bank.
Benefit of reduction in repo rate
When the RBI cuts the repo rate, financial pressure on the rest of the banks is reduced. After the repo rate cut by the RBI, the rest of the banks cut their interest rates. Due to this, the EMI of your home loan and car loan decreases. Repo rate is sometimes reduced to control the rate of inflation. Due to this, the country’s economy also benefits on a large scale. The auto and home loan sector benefits. Due to low repo rate, the loan is cheaper and it helps in home loan.