RBI’s measures to arrest Covid-19 slowdown

A day after Finance Minister Nirmala Sitharaman announced a Rs 1.7-trillion food-security and money-transfer package for the urban and rural poor, the Reserve Bank of India (RBI) also announced several measures to check the slowdown amidst the coronavirus pandemic. The measures announced by RBI governor Shaktikanta Das on 27 March 2020.
  1. The RBI has reduced the repo rate by 75 basis points (bps) to 4.4 per cent, and the reverse repo rate by 90 bps which now stands at 4 per cent.
  2. As you might already know, repo rate is the rate at which a country’s central bank, which means the RBI, lends money to commercial banks.
  3. The reverse repo rate is the rate at which it borrows from them.
  4. The development comes after the MPC voted 4:2 in favour of the reduction of the repo rate, during meetings on March 24, 25 and 27.
  5. Earlier, the US Federal Reserve lowered the interest rates twice. First, by half a percentage point to a target range of 1.00 per cent to 1.25 per cent, on March 3, and now it stands 0-0.25 per cent, down by 100 bps.
  6. Other central banks, too, have taken sweeping actions to fight the coronavirus. The Reserve Bank of New Zealand (RBA), for instance, slashed interest rates by 75 basis points (bps) to a record low.
  7. Australia’s central bank, the Reserve Bank of Australia, poured $3.6 billion in liquidity into Australia’s financial system and said it was prepared to buy government bonds. In South Korea, the central bank cut its benchmark interest rate by 50 basis points in a rare inter-meeting action.
  8. Apart from rate cuts, RBI has also announced a number of liquidity infusion measures, which include putting Rs 3.74 trillion of liquidity in the banking system.
  9. The total liquidity infusion by the central bank due to coronavirus stress now amounts to an unprecedented Rs 6.5 trillion.
  10. It has also imposed a moratorium on principal and interest payments for three months and told banks and non-banking finance companies that non-payment won’t be considered as non-performing assets (NPA).
  11. RBI gave banks excess liquidity of up to Rs 1 trillion to specifically invest in corporate bonds and commercial papers. The central bank has also cut the cash reserve ratio (CRR) to 3 percent from 4 percent of the deposit base.
  12. In another significant move, the RBI said domestic banks will now take part in offshore rupee markets, or non-deliverable forwards (NDF) a move that allows the RBI to directly intervene in these markets to contain rupee volatility.
  13. On 26 March 2020, Finance Minister Nirmala Sitharaman also announced a relief package for the poor and migrant workers in the country under the Prime Minister Gareeb Kalyan scheme.
  14. The scheme worth Rs 1.7 trillion has two parts — cash transfer and food security to take care of the welfare concerns of the poor and migrant workers who have been suffering because of a nationwide lockdown.

Seventh bi-monthly monetary statement for 2019-20

  1. Monetary Policy Committee (MPC) advances meeting scheduled for Apr 1-3
  2. Repo rate slashed by 75 basis points to 4.4%
  3. Reverse repo rate cut sharply by 90 basis points to 4% making unattractive for banks to deposit funds
  4. MPC votes unanimously for a reduction in the policy repo rate
  5. MPC decides to continue with the accommodative stance as long as it is necessary
  6. Committee votes 4:2 in favour of rate cut; unanimous on change in stance
  7. 2 MPC members Chetan Ghate and Pami Dua voted for a 50 bps rate cut
  8. Several measures taken to infuse liquidity of about Rs 3.74 lakh crore into the financial system
  9. RBI to undertake repo operation to infuse Rs 1 lakh crore
  10. Cash Reserve Ratio (CRR) cut sharply by 100 bps to 3 per cent releasing Rs 1.37 lakh cr into the system
  11. RBI assures to work in mission mode, monitoring the evolving financial market and macroeconomic conditions
  12. MPC for the first time advances meeting date and refrains from giving next meeting date in the wake of evolving situation
  13. GDP growth rate of 5% for 2019-20 at risk from the impact of pandemic
  14. Global slowdown to deepen with adverse implication for India; crude oil slump upside for country
  15. Upside growth impulses to emanate from monetary, fiscal measures and the early containment of COVID-19
  16. Food prices to soften further on back of record foodgrain production
  17. MPC refrains from giving out growth, inflation outlook for coming fiscal on uncertain outlook
  18. RBI permits all lending institutions to allow 3-month moratorium on payment of installments on term loans
  19. Moratorium on term loan, deferring of interest on working capital will not classify as default
  20. RBI urges banks and other financial institutions to do all they can to keep credit flowing

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