RBI cuts repo rate by 75 bps, 3-month pause on EMIs to offset Coronavirus impact

RBI has put on hold EMI payments on all term loans for three months and cut interest rate by steepest in more than 11 years.

RBI repo rate cut

The Reserve Bank of India (RBI) has responded to the coronavirus-induced economic crisis with a whopping 75 basis points cut in the repo rate, bringing it down to 4.4 per cent. With this move of the RBI, the repo rate has thus fallen to the lowest ever.

In fact, the RBI has also cut the CRR by 100 basis points to 3 per cent with effect from March 28, unlocking Rs 1.37 lakh crore primary liquidity in the banking system. The reverse repo rate, too, was lowered by 90 basis points. 

RBI also allowed banks and other lending institutions to extend the repayment schedule and moratorium by three months to avoid large NPAs and reduce risk weights. This would apply to all term loans as RBI also allowed all lending institutions to allow a moratorium up to three months for all loans outstanding as at March 1, 2020.

Highlights: Announcements made by the Reserve Bank of India

  • Repo rate slashed by a whopping 75 basis points to 4.4%, lowest ever
  • Lowered reverse repo rate by 90 basis points.
  • CRR reduced by 100 bps to 3%, unlock Rs 1.37 lakh crore liquidity
  • Allowed banks, other lenders to extend loan repayment schedule and moratorium by 3 months
  • Assured depositors their money is safe, bank stocks crash should not worry them

RBI Governor Shaktikanta Das said, “We need to be always battle-ready.” He added that tough times never last and that RBI was at work and is on a mission mode and will ensure the normal functioning of the markets. Large sell-off in equity and bond markets has intensified redemptions, Das said, adding that “time has come for RBI to unleash an array of instruments from its arsenal to revive growth and preserve financial stability.” It is essential to mitigate the burden of debt servicing now, the RBI Governor added.

He also stated in the press conference that liquidity distribution remains asymmetrical in the economy but asserted that the Indian banking system remained safe and sound. “It would be fallacious to link share price movements to the safety of deposits,” he added.

Reacting to the RBI announcement, Finance Minister, Nirmala Sitharaman said that the rate cut will to encourage growth and ensure financial stability.

Mr. Kaushal Agarwal, Chairman-Director, The Guardians Real Estate Advisory commented on RBI announcements,

“The steep cut in the Repo & reverse repo rates by 75 and 90 basis points is in-line with announcements made by Central Banks across the world, to mitigate the impact of the Coronavirus. The 3-month moratorium for borrowers is a huge relief for individuals. At a time when there is a looming concern of the economy slipping into a recession, the announcements by the finance minister, yesterday and the RBI today depicts the responsiveness of our financial institutions. The relatively higher reduction in the reverse Repo and the CRR is bound to push banks to look at increased lending, thereby ensuring attractive lending rates. We believe that with the Repo now, at 4.40% the banks will finally be passing the benefits of the current & previous rate cuts to the customers. This will reduce the borrowing cost for the home-seeker significantly and have a positive impact on Real Estate. The commitment by the RBI Governor to tackle the evolving situation by making use of the many arsenals at it’s disposal is very reassuring.”

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