On Friday, the Governor of the Reserve Bank of India (RBI), Shaktikanta Das announced that the bank’s Monetary Policy Committee (MPC) has decided to advance its meeting because of the Coronavirus crisis and have voted for huge reductions in the Repo Rate to mitigate the sword hanging over the Indian economy.
Moody’s has cut India’s economic growth for the year 2020 from 5.3% to 2.5% due to the increasing economic cost of the novel Coronavirus which has been declared a pandemic by the World Health Organisation (WHO).
In the MPC meeting, which was preponed to 25th to 27th of March from 31st March to 3rd April taking into consideration the deteriorating situation of the Indian economy.
The major announcements made by the apex bank today were:
Hold On EMIs And Loans
It was announced that the banks will now be permitted to allow a 3 months moratorium on the payments of the Equated monthly installments (EMIs) on all the term loans that were outstanding on the 1st of March 2020.
However, as the RBI said, the banks are permitted, as they were not ordered hence the final decision of offering such a relief lies at the hands of the banks.
Also, as the Credit Card dues are not-term loans, they will not be included.
Having said this, this is a big takeaway from the announcements from the RBI as many people in the country have been hit financially due to the lockdown which was implemented by Prime Minister Narendra Modi as a measure to prevent the spread of COVID-19.
But, to what extent it helps the customers, only time will tell.
Repo Rate Down To Its Lowest Ever
RBI’s MPC voted in favor of slashing the interest rate by 75 basis points, which brings down the Repo Rate to 4.4% from 5.15%.
Even the Reverse Repo Rate has been decreased by 90 basis points which bring it down to 4% as a measure to bring financial stability and facilitate growth.
Das said that currently the outlook still remains extremely uncertain and moving forwards, much will depend on how India combats the novel Coronavirus pandemic. The RBI governor added, “The outlook is now heavily contingent upon the intensity, spread, and duration of the pandemic. There is a rising probability that large parts of the world will slip into recession,”.
He also said that the “MPC noted that global economic activity has come to a near stand-still as Covid-19 related lockdowns and social distancing in affected countries. Expectations of a shallow recovery in 2020 from 2019’s decade low in global growth have been dashed,”.
Other Measures Taken By The RBI
Apart from reducing the key rates, and allowing the banks to a 3 months moratorium on the payments of the EMIs, the top bank also announced a handful of liquidity measures related to Cash Reserve Ration (CRR), Targeted Long Term Repo Operations (TLTRO), and Marginal Cost of Funds based Lending Rate (MLCR) to ease the pressure building on the economy.
RBI’s Governor, Shaktikanta Das said, “It has been decided to reduce the Cash Reserve Ratio (CRR) of all banks by 100 basis points to 3% of Net Demand and Time Liabilities with effect from the fortnight beginning March 28 for a period of 1 year,”.
The announcement from the RBI comes just one day after the Government of India unveiled their Rs. 1.70 lakh crore relief package for the poor, and widow due to the deadly virus outbreak.
RBI’s relief measures are announced when the Indian GDP growth stands at 3.2% due to the Coronavirus.
Das assured during the announcement that the fundamentals of the Indian economy are sound and added that it will support the economy for as long it will be needed. Das said, “Tough times never last, only tough people and institutions do. The RBI is at work and at mission mode. Will do everything required to mitigate the effects of Covid-19 pandemic,”.
Earlier, the RBI made a statement that it had enough reserves and will come up to tackle the situations whenever the situation worsens.
Apart from the relief package, RBI has been conducting various monetary operations to improve the liquidity and its management as the top bank is trying to keep the Indian banking sector in a healthy state to better fight the Coronavirus affects on the economy.