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RBI Announces Repo Rate Cut & Other Measures Amidst Coronavirus Pandemic and Lockdown

Professor of Financial Economics and Part-time Value Investor, Transfin.
Mar 27, 2020 1:12 PM 2 min read
Editorial

Big Bang Announcements

Desperate times warrant massive measures. The RBI today announced giant steps to safeguard the economy amidst the coronavirus pandemic, which has led to a 21-day nationwide lockdown.

 

What You Need to Know

The RBI Monetary Policy Committee (MPC) voted 4-2 in favour of cutting the repo rate cut by 75 basis points (bps) to 4.4% from 5.15% earlier (the two dissenters supported a 50 bps cut). The reverse repo rate, meanwhile, has been cut by 90 bps to 4%.

 

Other major announcements include:

  • Several measures taken to infuse liquidity of about ₹3.74Lcr ($49.6bn) into the financial system
  • Liquidity injection via reduction in Cash Reserve Ratio (CRR) by 100 bps to 3%
  • RBI to undertake Targeted Longer-Term Refinancing Operations (TLTRO) to infuse ₹1Lcr ($13.2bn) in banks. This TLTRO will have to be deployed by banks in investment grade bonds, commercial paper and non-convertible debentures. This is expected to help the lending markets and reduce bond spreads
  • Accommodation under Marginal Standing Facility to be increased from 2% from Statutory Liquidity Ratio (SLR) to 3% with immediate effect till June 30th
  • Moratorium of three months on repayment of all term loans and on working cap interest payments, subject to individual bank policies
  • MPC decides to continue with accommodative stance for as long as necessary
  • MPC for the first time advances meeting date scheduled for April 1st-3rd and refrains from giving next meeting date in the wake of evolving situation

 

Here are the highlights and first comments on the RBI’s announcements. [Arkvega]

 

In his official statement, RBI Governor Shaktikanta Das acknowledged that “We are living through an extraordinary and unprecedented situation.” Saying a “war effort” has to mounted to revive growth and preserve financial stability, the Governor said “The need of the hour is to do whatever is necessary to shield the domestic economy from the pandemic.”

FIN.

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