The apex bank of the country has announced a raft of measure to shield the economy from the pandemic and has decided to slash the repo rate by 75 bps to 4.4 per cent, reverse repo rate by 90 bps and cash reserve ratio by 100 bps to 3 per cent from March 28 for one year.
In the wake of the ongoing pandemic of COVID-19, which is wreaking havoc across the world, many countries have been put under lockdown and brought to a screeching halt. India is no exception and has been put under a 21-day lockdown, which is causing a huge loss to the economy. To boost the economy, Finance Minister, Nirmala Sitharaman has announced a Rs 1.07 lakh crore relief package for the poor on March 26.
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“The Monetary Policy Committee (MPC) decided to advance its meeting due on April 3. It was decided for March 24, 25, 27 and undertook the careful evaluation”, said RBI governor Shaktikanta Das while addressing a press conference today. Das added further: “The MPC voted for a sizeable reduction in repo rate and maintaining accommodative stance. There was some difference in quantum of reduction and MPC voted by 4:2 majorities to reduce policy repo rate by 75 bps to 4.4 per cent.”
“This would not necessarily promote growth but avert a collapse, so it is a big positive. The implications of these measures are quite clear that includes no freeze in the credit market. The banks get some at low cost and lose some (lower lending rate, the pressure to lend),” said Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares and Stockbrokers.
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However Das, while addressing the media last time, announced a few steps to ensure liquidity in the market and said that he was not ruling out any rate cut. But seeing the extraordinary state of affairs, the RBI has to take this action immediately. Even the banks around the world have cut their interest rates amid the economic challenges unleashed by COVID-19. A few days ago the US Fed slashed interest rates and brought it down to roughly zero. In South Korea, the central bank cut its benchmark interest rate by 50 bps.
Das also explained that these MPC decisions and RBI’s other actions must be seen as a comprehensive package with force multipliers. He mentioned that large parts of the world will slip into recession. He announced that all banks and lending institutions may allow a three-month moratorium on all loans.
Throwing light on the proportion of liquidity injected by the apex bank into the economy, he said, “RBI has injected liquidity of Rs 2.8 lakh crore, which forms up around 1.4 per cent of GDP. Along with today’s measure, liquidity measures have come down to 3.2 per cent of GDP.” He also assured that RBI will take continuous measures to ensure liquidity in the system.
The government and the apex bank has done their bit to safeguard the economy from the pandemic of COVID-19. All will be looking forward to India’s economic trajectory after the 21-day lockdown gets over.
