After RBI’s rate cut and EMI hold, PM Modi hails ‘giant steps’

Prime Minister Narendra Modi on Friday praised the Reserve Bank of India (RBI) after it announced a cut in interest rates, steepest in more than a decade, and put on hold instalment payments on all term loans for three months.

“Today @RBI has taken giant steps to safeguard our economy from the impact of the Coronavirus” the Prime Minister tweeted.

“The announcements will improve liquidity, reduce cost of funds, help middle class and businesses,” Modi said.

RBI governor Shaktikanta Das cut the repo rate, the benchmark interest rate, by 75 basis points in an effort to rescue a slowing economy now affected by the spreading coronavirus pandemic.

The central bank cut repo to 4.4%, the lowest in at least 15 years, and also reduced the reverse repo rate by 90 bps to 4%.

It also lowered the cash reserve ratio (CRR) maintained by the banks for the first time in over seven years. CRR for all banks was cut by 100 basis points to release Rs 137,000 crore across the banking system.

The RBI said it has decided to retain its accommodative stance as long as it is necessary to revive growth and mitigate the impact of coronavirus on the economy while ensuring that inflation remains within the target.

The six-member monetary policy committee (MPC) of RBI met earlier in the week to arrive at the decision.

“The MPC noted that macroeconomic risks both on the demand and supply side brought on by the pandemic could be severe. The need of the hour is to do whatever is necessary to shield the domestic economy from the pandemic,” Das said via video conference.

This was the first time in five years that the RBI has acted outside the scheduled dates for policy meetings. The MPC was originally scheduled to meet in early April.

The last time RBI announced cut rates in an out-of-turn move was in March 2015 following a budget announcement.

The RBI also permitted banks to provide a three-month moratorium on all term loans and said it stands ready to provide necessary liquidity and take all measures essential to preserve financial stability in the domestic economy.

It slashed interest rates, following other central banks, in an emergency move to counter economic fallout from a fast-spreading coronavirus across the globe.

Most global central banks, including the US Federal Reserve, have cut interest rates to battle the impact of the Covid-19 outbreak, while many have also resorted to printing money to prevent their economies from slipping towards recession.

The European Central Bank ditched a cap on how many bonds it can buy from any single eurozone country on Thursday, clearing the way for potentially unlimited money-printing as it scaled up its response to the pandemic.

The measures by RBI came a day after the government unveiled a Rs 1.7 lakh crore package of free food grains and cash doles to the poor to deal with the economic impact of the unprecedented 21-day nationwide lockdown.

(With agency inputs)