RBI's surprise announcement : 10 things to know


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.

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Reserve Bank of India (RBI) hikes repo rates by 25 basis points


The six-member monetary policy committee (MPC) of the Reserve Bank of India (RBI) has decided to increase the repo rate by 25 basis points to 6.5% due to inflation concerns.

Repurchase rate or the repo rate is the rate at which the RBI lends money to commercial banks in the event of any shortfall of funds. Reverse repo — the rate at which the RBI borrows money from commercial banks within the country — is adjusted to 6.25 per cent.Five members of the MPC voted for the rate hike. 


While raising the key policy rates, the RBI, however, has maintained the neutral policy stance.“Uncertainty around domestic inflation needs to be carefully monitored in the coming months,” the central bank said while increasing its inflation projection.

According to the RBI, inflation outlook is likely to be shaped by several factors, including the government’s decision to increase the minimum support price (MSP) for kharif crops.The RBI has projected the inflation at 4.6 per cent in Q2, 4.8% in H2 of 2018-19 and 5.0% in Q1 of 2019-20 “with risks evenly balanced”.“The MPC reiterates its commitment to achieving the medium-term target for headline inflation of 4 per cent on a durable basis,” the RBI said.
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Small savings interest rate cut by 0.2%

The government on Wednesday cut the interest rate on small savings schemes, including public provident fund (PPF), national savings certificate (NSC) and Kisan Vikas Patra, by 0.2 percentage points for the January-March quarter, a move that will prompt banks to lower deposit rates.
Interest rates in the five-year Senior Citizens Savings Scheme, however, has been retained at 8.3%. The interest rate on the senior citizens’ scheme is paid quarterly.
A finance ministry notification said interest rates have been reduced across several small savings schemes but that for savings deposits has been retained at 4% annually.
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Private sector banks cut rates for savings deposits

Having improved their ratio of low-cost current and savings accounts (CASA) in the past six years, new age private sector banks are now rationalising their deposit rates by steadily raising their deposit slabs, which is likely to help them improve margins from here on. IndusInd Bank, Yes Bank and Kotak Mahindra Bank have either fully or partially tweaked their savings rates since September after seeing a sharp rise in CASA ratio since the RBI allowed banks to set their own savings rate in October 2011. 
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After SBI, Bank of Baroda cuts interest rates on savings accounts

Within days of SBI slashing interest rate on savings bank account, another PSU bank - Bank of Baroda - has followed suit, cutting it to 3.5 per cent on deposits of up to Rs. 50 lakh.




"We wish to inform you that it has been decided to introduce a 2-tier savings bank interest rate (from) August 5...," the bank said in a regulatory filing. Effective from Saturday, the interest rate on savings bank balance of up to Rs. 50 lakh has been reduced to 3.5 per cent from the current annual 4 per cent.
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SBI cuts savings rate by 0.5%


SBI today cut interest rate on savings bank account deposits up to Rs 1 crore by 0.5 per cent to 3.5 per cent, lowest in six years, a decision that will impact 90 per cent of its customers. 

The bank's decision comes two days ahead of RBI's monetary policy meet and is likely to trigger rate war among peers. 

SBI's savings bank account base is of around Rs 9 lakh crore. The country's largest lender however will continue to pay 4 per cent interest on savings bank accounts with deposits of above Rs 1 crore, it said in a statement. 
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