Reserve
Bank of India (RBI) Governor Shaktikanta Das slashed the key lending rate by 75
basis points (0.75 percentage point) in an emergency move on Friday, to counter
the economic fallout from the rapid spread of the deadly coronavirus pandemic.
The move came as the country entered the third day of nationwide lockdown to
curb the spread of the virus, following an unscheduled meeting of its Monetary
Policy Committee, which was originally scheduled to conduct a bi-monthly review
early next month. Four out of the six members of the Monetary Policy Committee
voted in favour of the move. "The economic outlook globally is uncertain
and obviously negative... Financial stability is the topmost priority of the
RBI in this crisis," said Shaktikanta Das.
Here are 10 things to
know about the RBI's announcement:
1. The magnitude of the
cut in repo rate - the key interest rate at which the RBI lends short-term
funds to commercial banks - was the highest under Shaktikanta Das so far. The
largest cut he had delivered was of 35 basis points in August last year.
2. The RBI Governor also
announced a cut of 100 basis points in the cash reserve ratio(CRR) for a period of
one year, a step he said will ensure sufficient liquidity in the
system. CRR or cash reserve ratio is the amount of cash commercial banks
have to mandatorily park with the Reserve Bank of India. "This would
release liquidity worth Rs 1,37,000 crore within banks," the RBI Governor
said.
3. It also permitted all
commercial banks and lending institutions to allow a three-month moratorium on
all loans, in view of the ongoing lockdown to protect the 130 crore people in
the country from the deadly virus. "Banks should do all they can to keep
credit flowing," Mr Das added.
4. The priority is to
undertake "strong and purposeful action" to protect the economy, and
there is a need for all stakeholders to fight against the coronavirus pandemic,
Mr Das said.
5. The surprise moves
came as India entered the third day of a 21-day countrywide lockdown to curb
the rapid spread of the coronavirus pandemic. The RBI Governor-headed
Monetary Policy Committee was originally scheduled to meet early next month.
6. "Indian banking
system is safe and sound... In spite of the challenging environment, I remain
optimistic," the RBI Governor said.
7. The RBI has already
infused Rs 2.7 lakh crore into the country's financial system since the
February policy meeting, the Governor said. The central bank's overall
liquidity injection stands at 3.2 per cent of GDP, he said.
8. He said the RBI will
continue to be vigilant and take "whatever steps necessary" to
mitigate the impact of the coronavirus on the economy.
9. On Thursday, Finance
Minister Nirmala Sitharaman had announced a Rs 1.7 lakh-crore fiscal package to
support the poor through direct cash transfers and food security measures,
without giving details on how the programme will be funded.
10. India is staring at the worst annual rate of
gross domestic product (GDP) expansion recorded since the 2008-09 global
financial crisis, and many economists have anticipated a further blow to the
economy thanks to the COVID-19 outbreak.