RBI cuts repo rate by 75 bps to 4.4%; other key highlights of central bank's monetary policy review

The RBI on Friday allowed banks to put on hold EMI payments on all term loans for three months as it slashed the cost of fresh borrowing by cutting policy interest rate by steepest in more than 11 years, joining the efforts of the government to counter the economic fallout of the fast-spreading coronavirus pandemic. The Reserve Bank of India (RBI), which brought forward by a week the key meeting of the monetary policy committee, also announced steps to boost liquidity worth 3.2 percent of the gross domestic product, and said it will retain its accommodative stance as long as it is necessary to revive growth and mitigate the impact of coronavirus on the economy. The benchmark repurchase or repo rate was slashed by 75 basis points to 4.40 percent from 5.15 percent, while the Cash Reserve Ratio - the amount of deposits banks must set aside as reserves - was cut by 100 basis points to 3 percent to boost liquidity. [caption id=“attachment_4377993” align=“alignleft” width=“380”] Representational image. Reuters[/caption] The biggest rate cut since January 2009 takes interest rate to the lowest in more than a one-and-a-half decade (lowest since October 2004). The reverse repo rate was reduced 90 basis points to 4 percent, creating an asymmetrical corridor. Here are the key highlights of RBI monetary policy review:

• Monetary Policy Committee (MPC) advances meeting scheduled for 1-3 April
• Repo rate slashed by 75 basis points to 4.4 percent
• Reverse repo rate cut sharply by 90 basis points to 4 percent making unattractive for banks to deposit funds
• MPC votes unanimously for a reduction in the policy repo rate
• MPC decides to continue with the accommodative stance as long as it is necessary
• Committee votes 4:2 in favour of rate cut; unanimous on change in stance
• 2 MPC members Chetan Ghate and Pami Dua voted for a 50 bps rate cut
• Several measures taken to infuse liquidity of about Rs 3.74 lakh crore into the financial system
• RBI to undertake repo operation to infuse Rs 1 lakh crore
• Cash Reserve Ratio (CRR) cut sharply by 100 bps to 3 percent releasing Rs 1.37 lakh cr into the system
• RBI assures to work in mission mode, monitoring the evolving financial market and macroeconomic conditions
• MPC for the first time advances meeting date and refrains from giving next meeting date in the wake of evolving situation
• GDP growth rate of 5 percent for 2019-20 at risk from the impact of pandemic
• Global slowdown to deepen with adverse implication for India; crude oil slump upside for country
• Upside growth impulses to emanate from monetary, fiscal measures and the early containment of COVID-19
• Food prices to soften further on the back of record foodgrain production
• MPC refrains from giving out growth, inflation outlook for coming fiscal on uncertain outlook
• RBI permits all lending institutions to allow 3-month moratorium on payment of installments on term loans
• Moratorium on term loan, deferring of interest on working capital will not classify as default
• RBI urges banks and other financial institutions to do all they can to keep credit flowing
• All instruments - conventional and unconventional - on the table to support financial stability and revive growth
• RBI assures that banking system in India safe; deposits safe in the private bank; the public should not resort to panic withdrawal
• RBI says macroeconomic fundamental stronger than that in the aftermath of 2008 financial market crisis
• Last tranche of the capital conservation buffer (CCB) for banks deferred for 6 months to September
• The minutes of the MPC to be published by 13 April

(With PTI inputs)