Reserve Bank of India’s Repo Rate Cut by 75 Basis Points

March 27, 2020

The Reserve Bank of India is the latest central bank to call an emergency meeting and approve a slew of stimulus measures. These include a 75-basis point cut of the repo rate to 4.40%, which brings the cummulative drop to 135 basis points since last August and to 210 basis points over the past 13 months. RBI policymakers also cut the reserve requirement ratio by a full percentage point to 3% and the reverse repo rate by 90 basis points, thus widening the differential between those two rates.Other steps to be taken involve targeted long-term repo operations, the marginal standing facility accommodation, a moratorium on term loans, deferred interest on working capital facilities, easier working capital financing, and deferred implementation of the net stable funding ratio and last tranche of the capital conservation buffer. The statement explaining this plan mentions three priorities — preserve financial stability, mitigate negative effects of the virus and reviving growth — and it includes a powerfully worded paragraph framing the situation in military terms:

COVID-19 stalks the global economy and the outlook is highly uncertain and negative. Several nations are battling its exponential contagion; countries are shutting down to prevent being sucked into that black hole. Authorities all over the world are mobilizing on a massive scale to fight an invisible assassin. India has locked down. Economic activity and financial markets are under severe stress. Finance is the lifeline of the economy. Keeping it flowing is the paramount objective. The time has come for the Reserve Bank to unleash an array of instruments from its arsenal to staunch and mitigate the impact of COVID-19, revive growth and, above all, preserve financial stability. The aggressive action and stance of the MPC provides a befitting launching pad.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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