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The move came as India entered the third day of a
21-day countrywide lockdown to curb the rapid spread of the coronavirus
pandemic.
India (RBI) Governor Shaktikanta Das slashed the key lending rate by 75 basis
points (0.75 percentage point) in an emergency move on Friday, to counter the
economic fallout of the coronavirus-induced lockout. The move came after an
unscheduled meeting of the Shaktikanta Das-headed Monetary Policy Committee,
which was originally slated for a bi-monthly review early next month. Four out
of the six members of the Monetary Policy Committee voted in favour of the
move. “The economic outlook globally is uncertain and obviously
negative… Financial stability is the topmost priority of the RBI in this
crisis,” said Shaktikanta Das, as India entered the third day of a 21-day
countrywide lockdown to curb the rapid spread of the coronavirus pandemic.
Here are 10 things to know about the RBI’s surprise
move:
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.
2.
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.
3.
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.
4.
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
conference.
5.
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.
6.
“Indian banking system is safe and sound… In spite of
the challenging environment, I remain optimistic,” the RBI Governor
said.
7.
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.
8.
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
target.
9.
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.
10.
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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