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RBI Cuts Rates, Allows 3-Month Pause On EMIs To Offset Coronavirus Impact


The move came as India entered the third day of a
21-day countrywide lockdown to curb the rapid spread of the coronavirus

 Here are 10 things to know about the RBI’s surprise

The magnitude of the cut in repo rate – the key
interest rate at which the RBI lends short-term funds to commercial banks – has
been the highest under Shaktikanta Das, and also the steepest since January
2009. Until now, the largest cut by Mr Das was of 35 basis points in August
last year and considering the latest reduction, he has slashed the rates by a
total of 210 basis points.

The RBI Governor also announced a cut of 100 basis points in
the cash reserve ratio for a period of one year, a step he said will ensure
sufficient liquidity in the system. CRR or cash reserve ratio is the
amount of cash commercial banks have to mandatorily park with the Reserve Bank
of India. “This would release liquidity worth Rs 1,37,000 crore
within banks,” the RBI Governor said.

The central bank also permitted all commercial banks
and lending institutions to allow a three-month moratorium on all loans, in
view of the ongoing lockdown to protect the 130 crore people in the country
from the deadly virus. “Banks should do all they can to keep credit
flowing,” Mr Das added. 

The priority is to undertake “strong and purposeful
action” to protect the economy, and there is a need for all stakeholders
to fight against the coronavirus pandemic, the RBI governor said via video

The surprise moves came as India entered the third day of a
21-day countrywide lockdown to curb the rapid spread of the coronavirus
pandemic. The Monetary Policy Committee was originally scheduled to meet
early next month.

“Indian banking system is safe and sound… In spite of
the challenging environment, I remain optimistic,” the RBI Governor

The RBI has already infused Rs 2.7 lakh crore into the
country’s financial system since the February policy meeting, Mr Das said,
adding that the central bank’s overall liquidity injection stands at 3.2 per
cent of GDP.

The central bank will continue to be vigilant and take
“whatever steps necessary” to mitigate the impact of the coronavirus
on the economy, Mr Das assured. He further asserted that the central bank
will maintain its “accommodative” stance of policy “as long
as necessary” to revive growth, while ensuring inflation remained within

On Thursday, Finance Minister Nirmala Sitharaman had
announced a Rs 1.7 lakh-crore fiscal package to support the poor through direct
cash transfers and food security measures, without giving details on how the
programme will be funded.

India is staring at the worst annual rate of gross domestic
product (GDP) expansion recorded since the 2008-09 global financial
crisis, and many economists have anticipated a further blow to the economy
thanks to the COVID-19 outbreak.

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