Covid-19 relief: RBI cuts repo 75 bps; defers term-loan EMIs for 3 months

The Reserve Bank of India (RBI) on Friday went all guns blazing to arrest a potential slowdown caused by the coronavirus (Covid-19), lowering the policy repo rate by 75 basis points to 4.4 per cent.

"Given the Covid-19 stress, the six-member monetary policy committee (MPC) advanced their March 31-April 3 meetings to meet on March 24-26 and 27, and voted 4:2 to cut the policy repo rate to 4.4 per cent", Reserve Bank of India Governor Shaktikanta Das, who addressed the media through video streaming, said.

At the same time, the reverse repo rate, which is the rate at which banks keep their excess funds with the RBI, was lowered by 90 basis points to discourage banks from keeping their excess liquidity with the central bank. The idea is that banks must lend funds for productive needs.

Apart from the rate cuts, the central bank also announced a number of liquidity infusion measures, putting Rs 3.74 trillion of liquidity in the banking system. The total liquidity infusion by the central bank due to coronavirus stress now amounts to an unprecedented Rs 6.5 trillion.

“To address the disruptive force of coronavirus, and to revive growth and to preserve financial stability, a war effort has to be mounted and is being mounted,” the governor said.

“Tough times never last, only tough people and tough institutions last,” the governor said, adding that the RBI is in a mission mode and will be ready with all the available tools to fight the slowdown.

"The food inflation will likely crash in the coming months, but “apart from agriculture, most other sectors will be impacted,” the governor warned. But it also depends upon the containment, intensity, spread, and duration of the virus contagion", he said.

The MPC, therefore, refrained from giving any projection.

The RBI imposed a moratorium on principal and interest payments for three months and told banks and non-banking finance companies that that non-payment won’t be considered as non-performing assets (NPA). RBI gave banks excess liquidity of up to Rs 1 trillion to specifically invest in corporate bonds and commercial papers. The central bank also cut cash reserve ratio (CRR) to 3 per cent from 4 per cent of the deposit base.

In another important measure, the RBI said domestic banks will now take part in offshore rupee markets, or non-deliverable forwards (NDF) a move that allows the RBI access to directly intervene in these markets to contain rupee volatility.