is the rate at which a country’s central bank lends money to commercial banks, and reverse repo rate is the rate at which it borrows from them.
MPC voted 4-2 in favour of the reduction of the repo rate by 75 bps, RBI Governor Shaktikanta Das said in an address to media. The governor informed that the members of the MPC met on March 24, 26, and 27.
"It is our effort to ensure normal functioning of the market," Das said. The governor further said that the economic growth and inflation projection would be highly contingent depending on the duration, spread and intensity of the pandemic. "Need of the hour is to shield the economy from the pandemic," Das added.
Meanwhile, liquidity adjustment facility (LAF) has been reduced by 90 bps to 4 per cent while cash reserve ratio (CRR) has been slashed by 100 bps to 3 per cent.
Moratorium on loans
In an order to mitigate the burden of debt servicing brought about by disruptions on account of Covid-19 pandemic, the central bank announced measures that included moratorium on term loans; deferring interest payments on working capital; easing of working capital financing; deferment of implementation of the net stable funding ratio; and the last tranche of the capital conservation buffer.
"All commercial banks (including regional rural banks, small finance
banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance
companies and micro-finance
institutions) (“lending institutions”) are being permitted to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020," the statement added.
Earlier, the US Federal Reserve had lowered the interest rates, bringing it near zero, in another emergency move to help shore up the US economy amid the rapidly escalating global coronavirus
pandemic. The Fed had cut interest rates by half a percentage point on March 3, too, in its first emergency cut since the financial crisis of 2008.
Other central banks, too, have taken sweeping actions to fight coronavirus.
Reserve Bank of New Zealand (RBA), for instance, slashed interest rates by 75 basis points (bps) to a record low. Australia's central bank, the Reserve Bank of Australia, poured $3.6 billion in liquidity into Australia's financial system and said it was prepared to buy government bonds. In South Korea, the central bank cut its benchmark interest rate by 50 basis points in a rare inter-meeting action.
Back home, Finance Minister Nirmala Sitharaman on Thursday announced a relief package for the poor and migrant workers in the country in light of the 21-day lockdown in the country to tackle the challenge posed by the coronavirus (Covid-19) pandemic.
The Prime Minister Gareeb Kalyan scheme worth Rs 1.7 trillion will have two parts — cash transfer and food security, said the Finance Minister. Covid-19 package to take care of the welfare concerns of the poor and migrant workers who have been suffering because of a nationwide lockdown.