RBI’s surprise announcement: 5 things to know
Union finance minister Nirmala Sitharaman tweeted to say the measures announced by RBI would offer “much-desired relief” to borrowers.Updated: Mar 27, 2020 13:39 IST
The Reserve Bank of India, at an unscheduled meeting of its monetary policy committee, decided on a sharp cut in key policy rates on Friday, seeking to spur faltering economic growth in the aftermath of the coronavirus and announced a moratorium on loan repayments by individuals to provide relief to middle-class borrowers.
Here is a summary of measures announced by the central bank:
1) RBI allowed banks, non-banking financial companies, including housing financiers and other financial institutions to allow a three-month moratorium on payment of instalments on term loans amid the disruption caused the coronavirus outbreak. Governor Shashikanta Das said the deferment will have no adverse impact on the credit history of the borrower.
The three-month moratorium allowed by RBI will help borrowers in easing the burden on their savings and avoid turning defaulters. Union finance minister Nirmala Sitharaman tweeted to say the measures announced by RBI would offer “much-desired relief” to borrowers.
2) RBI also allowed banks to restructure the working capital cycle for companies without worrying that these will have to be classified as non-performing assets (NPAs) during the 21-day countrywide lockdown.
3) RBI governor Das also slashed the key repo rate, at which the central bank infuses liquidity in the banking system by 75 basis points to 4.4% and the reverse repo rate, at which it drains excess liquidity from the system by 90 basis points to 4% to revive economic growth. .It is the first cut in policy rates since December. One basis point is one-hundredth of a percentage point.The Cash Reserve Ratio, the amount of deposits lenders must set aside as reserves, was lowered by 100 basis points 3%.
4) Governor Das said India will struggle to achieve its fiscal fourth-quarter economic forecast of 4.&% in the aftermath of the coronavirus outbreak. The budget presented on February 1 had forecast economic growth of 6% in the full year to March 31, the slowest pace in 11 years. He added that India needed conventional and non-conventional measures to tackle the unprecedented situation depending on the spread, intensity and duration of the outbreak.
5) The rupee and bonds rallied after the measures, which followed a Rs1.7 lakh crore economic infusion. The rupee jumped as much as 1.1% to 74.3625 to the dollar. The yield on 10-year bonds fell as much as 24 basis points to 5.98%, the lowest sinc e 2009. Bond yields and prices move in opposite direction.Stocks fell after rising initially.