RBI
Cuts Key Lending Rate To 4% From 4.4% Amid COVID-19 Crisis
RBI Governor Shaktikanta
Das announced a cut in the repo rate by 40 basis points (bps) to 4 percent.
Reserve
Bank of India (RBI) Governor Shaktikanta Das on Friday announced a reduction in
the repo rate to 4 per cent from the existing 4.4 per cent in a surprise move to
support the economy. That marked the lowest repo rate - or the key interest
rate at which the RBI lends short-term funds to commercial banks - recorded
since 2000. The reduction in the key interest rate will allow banks more room
to lower the EMI burden for their borrowers. The RBI Governor also extended the
loan moratorium - which allows banks to defer EMI payments by their customers -
by another three months till August.
Here are 10 things to know
about this big story:
1.
The announcements were
aimed at countering the fallout from the ongoing nationwide lockdown to contain
the spread of coronavirus pandemic, which has pushed the economy into a
standstill, hurt businesses and landed thousands jobless.
2.
In his first address to the
media after the government detailed the fiscal and monetary stimulus worth Rs
20.97 lakh crore, Mr Das said economy is expected to remain in the
negative territory in the current financial year due to the COVID-19
outbreak. Mr Das added that headline inflation may remain firm in the
first half of the current financial year and only ease in the later part of the
year.
3.
RBI also announced a
reduction in the reverse repo rate - the interest rate at which the RBI borrows
funds from commercial banks - to 3.35 per cent from existing 3.75 per cent.
4.
The committee decided to
continue with its "accommodative" policy stance, which means the
central bank is ready to ease monetary policy further to support the financial
system.
5.
Five members of the
Monetary Policy Committee (MPC) voted in favour of rate reduction, RBI Governor
Shaktikanta Das said through a video address.
6.
The RBI extended the term
loan moratorium and also relaxed the repayment terms (interest payments) to
prevent a cash-squeeze for borrowers.
7.
The RBI Governor said the
combination of fiscal, monetary and administrative measures will create
conditions that will enable a gradual economic revival, going forward.
8.
Economists say the
transmission of lower interest rates by banks to their customers will be
closely watched.
9.
"The RBI flagged risks
of a negative growth print this year, while holding back on a point target.
They expect disinflationary forces to dominate, suggest they open for further
reduction in cuts," said DBS Bank economist Radhika Rao.
10. In March, the RBI had
slashed the repo rate by 75 bps to stimulate growth, and the next month, it
unexpectedly lowered the key deposit rate - or reverse repo rate - to 3.75 per
cent, in a bid to discourage commercial banks from parking idle funds with it
and spur lending.
Tags
Economy