A day after Union Finance Minister Nirmala Sitharaman introduced an economic relief package, RBI Governor Shaktikanta Das on Friday, 27 March, announced a slew of measures, including a repo rate cut, to combat the economic impact of the coronavirus outbreak.
“The need of the hour is to do whatever is necessary to shield the domestic economy from the pandemic,” the RBI governor said.
Here are the key highlights of his address:
- RBI has cut repo rate by 75 basis points from 5.15 percent to 4.4 percent.
- The reverse repo rate has been reduced by 90 basis points to 4 percent, so that banks are incentivised to lend.
- According to the RBI governor, hopes of a shallow recovery in 2020 have been dashed and there is a rising probability that large parts of the world will slip into recession.
- The cash reserve ratio (CRR) of all banks has been reduced by 100 basis points to 3 percent of net demand and time liabilities, with effect from the fortnight beginning 28 March for a period of one year.
- Lending institutions have been allowed to place a three-month moratorium on the payment of term loan installments (EMIs).
- The moratorium and the deferring of interest on working capital will not be classified as default and will not impact the credit history of the borrower.
- With these measures, RBI says it will inject liquidity worth Rs 3.74 lakh crore into the financial system.
- “Finance is the lifeline of the economy, keeping it flowing is the paramount objective of the Reserve Bank of India at this point of time,” the RBI governor said.
- According to Das, “it would be fallacious to link share prices to the safety of deposits. Depositors of commercial banks including private sector banks need not worry about the safety of their funds.”
PM Modi Lauds RBI’s ‘Giant Steps’
Prime Minister Narendra Modi lauded the RBI’s “giant steps” to safeguard the economy from the impact of the coronavirus. “The announcements will improve liquidity, reduce cost of funds, help middle class and businesses,” he wrote on Twitter.
The finance minister also welcomed the RBI governor’s “reassuring words on financial stability”.
“The 3-month moratorium on payments of term loan instalments (EMI) & interest on working capital give much-desired relief. Slashed interest rate needs quick transmission,” she wrote.
On Thursday, announcing the 'Pradhan Mantri Garib Kalyan Yojana', Sitharaman pledged Rs 1.7 lakh crore to those worst-affected by the outbreak and the 21-day countrywide lockdown that has been imposed to contain its spread.
“We have come with a package which will take care of the welfare concerns of the poor, migrant workers and those who need immediate help,” she had said at the press briefing.
The total number of positive cases in India has risen to 724, the Health and Family Welfare Ministry said on Friday. Meanwhile, 17 people have died due to the disease.
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