RBI Highlights: RBI Stepped into the Battle to Reduce the Damage from Covid-19

‘Global slowdown could make things difficult for India too, despite some help from falling crude prices’, - Shaktikanta Das

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A day after PM Modi announced 1.70 lakh crore budgets on coronavirus, RBI stepped right into the battle today with a host of weighs directed at minimizing the damage from Covid-19, which will be relaxing the liquidity of the funds, will inject 3.75 lakh crore money in the economy which will be a great amount of money to ease the current situation. Let’s look into some major highlights from the announcement.

 Monetary Policy Committee (MPC) voted for the reduction of policy repo rate
 RBI cuts repo rate by 75 bps
 Repo rate reduced by 75 basis points to 4.4%. Reverse repo-rate reduced by 90 basis points to 4%: RBI
 The multi-pronged approach adopted to ease COVID-19 related liquidity constraints
 Efforts to ease financial stress by relaxing repayment pressure & improving access to Capital
 The rising probability that large parts of the global economy will slip into recession
 The collapse in food prices could work towards easing food price pressures
 India FY20 GDP growth forecast of 5% is now at risk
 MPC decides to refrain from growth & inflation targets, given the uncertainty
 There are downside risks to growth from prolonged lockdown. Actual CPI outcomes running 30 bps above our projection
 Need conventional, unconventional measures to combat the virus
 RBI Governor says the outlook is now heavily contingent upon intensity, spread, and duration of the pandemic
 Target long-term repo operation (LTRO). Large selloffs in markets have intensified pressure. will conduct LTRO of up to 3-yr tenor of up to Rs 1 lakh at a floating rate linked to the policy repo rate
 First auction of Rs 25,000 cr will be conducted later today
 A moratorium of three months of EMIs on all outstanding loans announced
 CRR cut will release Rs 1.37 lakh crore into the market
 Cash reserve ratio cut by 100 bps
 It has been decided to reduce the CRR of all banks by 100 BSP to 3% of Net Demand and Time Liabilities with effect from the fortnight beginning March 28 for a period of 1year
 The moratorium on term loans & deferring of interest payments on working capital will not lead to asset classification downgrade
 Marginal standing facility reduced to 2 percent of SLR: Reserve Bank Governor
 RBI injects Rs 3.74 trillion into the system as a result of all the announcements made today
 Indian banking system safe & sound assures Governor

 -Repo cut by 75 bps to 4.4%
 -Reverse repo cut by 90 bps to 4%
 -India’s GDP growth of 5% at risk
 -RBI to conduct auctions of LTRO of up to 3 yr tenor up to Rs 1 lakh crore
 -The first auction of Rs 25,000 cr will be conducted later today
 -Cut Cash Reserve Ratio (CRR) by 100 bps to 3% from March 28 for 1 year for all banks
 -Rs 1.37 lakh crore to be released via CRR cut
 -1-time dispensation: Minimum daily CRR balance cut from 90% to 80% from March 28
 -Liquidity infusion of Rs 3.74 lakh crore via the three steps announcement – LTRO, CRR & MSF
 -Mitigating debt servicing burden to prevent transmission of financial stress to the real economy, provide relief to borrowers
 -Permitted to allow a 3-month moratorium for all lending institutions!
 -3-month moratorium on payment of installments of loans outstanding on March 1, 2020
 -With the liquidity measures: RBI’s liquidity measures work out to 3.2% of GDP
 -Depositors of commercial banks including Pvt banks need not worry about the safety of their funds

“Make no mistake, it is a fight never seen before”, Shaktikanta Das warned while outlining the risks to the Indian economy from the coronavirus. According to The Economic Times, he stressed on the need to keep the credit flowing to the stressed areas of the economy. Das predicted a big recession coming for the entire world and said India won’t be immune. ‘It all depends how India responds to the situation’, Das said.

‘Global slowdown could make things difficult for India too, despite some help from falling crude prices’, he said. Food prices may soften further on record crop, he added. Aggregate demand may weaken and ease core inflation further, he said.

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RBI Highlights: RBI Stepped into the Battle to Reduce the Damage from Covid-19
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‘Global slowdown could make things difficult for India too, despite some help from falling crude prices’, - Shaktikanta Das
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THE POLICY TIMES
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