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Tata Capital > Blog > RBI Regulations > RBI Cuts Repo Rate by 75 bps to 4.40% to Fight Covid-19

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RBI Cuts Repo Rate by 75 bps to 4.40% to Fight Covid-19

RBI Cuts Repo Rate by 75 bps to 4.40% to Fight Covid-19

Amid the rising pandemic situation of COVID-19 globally and the corresponding 21-day lockdown imposed in India, the Indian economy sectors are expected to suffer a huge setback except for agriculture and allied activities. Moreover, given the rising intensity, spread and duration of the novel coronavirus, there is a huge possibility that many countries of the world, including India, will slip into recession. 

To stir the stationary economy and be prepared for the uncertainties, the Reserve Bank of India (RBI), on March 27, announced the much-anticipated move to cut down the repo rate by 75 bps from 5.15% to a meagre 4.40%. This is done with the intention of keeping the economy liquid and floating. The new repo rate is the lowest till date; previously only in April 2009, the repo rate was slashed to 4.74% because of the Global Financial Crisis. The reduced repo rate will allow commercial banks to borrow more from the RBI, which will, in turn, make loans from the commercial banks and other financial companies such as Tata Capital, cheaper for the general public, thereby boosting the economic growth. This will help the RBI control the expected inflation, while simultaneously benefitting the end-consumer. Also, to improve liquidity amidst the crisis, the RBI has allowed a 3-month EMI moratorium from March 1 to May 31; this means that borrowers can defer their EMI payments for term loans and credit card bills until May 31 without paying any penalty or impacting their credit score.

RBI Repo Rate Cut

Additional Read:- RBI’s Moratorium on EMI Payments during Covid-19

To further better the economy, the Central Bank has reduced the reverse repo rate by 90 bps to 4%. Additionally, the Cash Reserve Ratio (CRR) has been brought down to 3% of Net Demand and Time Liabilities; the benefit is expected to last for one year beginning from March 28, 2020. This step will create an influx of money in the economy (approximately Rs. 1.37 lakh crores), making loans more affordable for consumers. This measure is directed to increase financial investments and ensure the country is not engulfed in the projected global inflation due to the pandemic COVID-19 situation.

Given the current monetary state, mostly fuelled by the COVID-19 problem as well as due to the 2019’s low global growth, it is expected that the projected GDP of 4.7% in the Q4 2019-20 will take a huge blow. Even after the end of the lockdown, the progress trajectory of the Indian economy appears bleak; hence, such measures by the apex monetary institution have been ushered at the right time to provide some hope. Though the RBI has not made any official statement on the growth and inflation projection, it sincerely depends on the overall outlook of the novel coronavirus, which has till now affected more than 750 people in the country and claimed more than 19 lives. 

Additional Read:- RBI Press Conference on Monetary Relief Measures in the Time of COVID-19: Key Takeaways

In addition to these strong measures by the RBI, the Central and the State Government have taken steps to provide for the people in this hour of need.

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