The Reserve Bank of India (RBI) on March 27, 2020, used the majority of orthodox methods to fight COVID-19-led economic issues.
The Reserve Bank has significantly reduced interest rates across the board, taking cues from other central banks of the world, as part of emergency measures to safeguard the economy from the coronavirus.
Take a Look at Measures –
Sizeable Cut in Repo Rate:
The Reserve Bank of India announced a massive 75 basis points rate cut in Repo Rate, bringing it to 4.40% from 5.15%.
This is a big relief for retail borrowers with auto, home, and personal loans as it will bring down interest rates for them, once banks pass on the policy rate cuts.
This was the 5th biggest repo rate cut by RBI in the last 2 decades. Earlier, the RBI has cut repo rates as many as 100 basis points on 31 March 2004, 20 October 2008, 8 December 2008, and 5 January 2009 (Source – RBI)
Also Read: major interest rates and their impact
Reduction in Reverse Repo Rate:
The second biggest point was the reduction in the Reverse Repo Rate by 90 basis points, from 4.9% to 4%.
Reduction in the reverse repo is to discourage banks from parking the extra money with the Reserve Bank and to make them lend.
Cut in Cash Reserve Ratio:
The Sixer comes from RBI when it reduced Cash Reserve Ratio (CRR) by 100 basis points, from 4% to 3%.
This would release approximately INR 1.37 lakh Cr to banks for lending purposes. This is not earning anything for them currently, but will now become productive.
Suspension on Term Loans:
All lending institutions have been permitted a 3-month delay on payments of instalments of all term loans outstanding as of March 1, 2020.
Forward Guidance:
The RBI governor, Shaktikanta Das also stated that whatever steps are necessary – all instruments, conventional and unconventional are on the table,
“Let me assure that the Reserve Bank is at work in mission mode”.
We have been monitoring the changing financial market and the macroeconomic conditions and adjusting its operations to meet any need for additional liquidity support as well as to take other measures if warranted said the RBI governor.
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