MPC and RBI Announcements:

The Monetary policy Committee voted 4-2 to cut repo rate by 75 bps to 4.40% and reverse repo by 90 bps to 4%, Cash Reserve Ratio too has been cut by 100 bps to 3%. RBI Governor Says Projection of growth and inflation will be heavily contingent on spread and duration of pandemic. This kind of uncertain outlook never been seen before. Liquidity infusion will stabilize economy and repayment relief to borrowers will help in survival of industry.

Here are all the measures announced by RBI Governor:

  • Repo rate reduced by 75 basis points to 4.4%
  • Rev repo reduced by 90 basis points to 4%
  • GDP growth for Q4 19-20 and FY 20-21 to be affected
  • Aggregate demand may weaken.
  • Future outlook uncertain and negative.
  • CRR reduced by 100 basis points to 3% for 1 year to release 1.37 lakh crores
  • Min daily CRR balance reduced from 90% – 80% till 30/06/2020
  • 74 lakh crore liquidity injected.
  • 3 month moratorium on payment of installments of Term Loan outstanding
  • Interest on Working Capital facilities to be deferred by 3 months
  • Such deferment not to be considered for NPA
  • Revised DP calculations by reassessing WC cycle
  • All measures not to effect credit history
  • Total liquidity injection 3.4% of GDP.

RBI Outlook for 20-21:

Most parts of the World will see a low or freeze on economic activity. Apart from agriculture, most sectors will be impacted depending on intensity, spread and duration of the Virus. Slump in food prices will provide relief and ease inflation pressures. More Monetary, Fiscal and Other policy measures will need to be taken in next few months. “RBI will do what it takes to mitigate the economic impact of Covid All instruments conventional and unconventional are going to be used”

Conclusion:

Starting with Accommodative stance, RBI Governor took the major step to reduce repo and reverse repo rate by 75bps standing to 4.40% and 90 bps to 4.0% which is required considering the current COVID situation in the economy and the world wide impact. Governor has addressed almost all the issues by providing the LTRO up to 3yrs amounting to 1Lakh cr at floating rate. Governor has also reduced CRR of all banks by 100 bps to 3% and thus freeing up the liquidity of 1.37lakh cr across all banking. Bank borrowing overnight reduced to 2% which will be helpful in time of stress. All banks were allowed a moratorium of 3 months on the payment of installments in respect of term loan.

This is a very significant move and the RBI is finally doing whatever it takes. This will enhance the liquidity in the banking sector and will help the economy to be in a better position in this pandemic situation

Note: Dues on Credit card are not included in the 3-month moratorium. Pay on time if you can. Other loans like corporate, Home, Auto can be deferred for 3 months. But there is no waiver on interest.

Very important step and much needed!


DISCLOSURE IN PURSUANCE OF SECTION 19 OF SEBI (RA) REGULATION 2014

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