Covid 19: RBI follows Central Banks, cuts repo rate by 75 bps to fight coronavirus outbreak
New Delhi : Syncing with the moves by global central banks, the Reserve Bank of India (RBI) on Friday slashed the key repo rate by 75 basis points (bps) to 4.4 per cent, to provide some relief and control the economic slowdown in the wake of deadly coronavirus spread. The reverse repo rate now stands at 4 per cent, down 90 bps.
Repo rate is the rate at which a country’s central bank lends money to commercial banks, and reverse repo rate is the rate at which it borrows from them.
The decision was taken after the MPC voted 4-2 in favour of the reduction of the repo rate by 75 bps, RBI Governor Shaktikanta Das said in an address to media.
The meeting with MPC members over the matter was done on March 24, 25 and 27, said the Governor.
"It is our effort to ensure normal functioning of the market," Das said. The governor further said that the economic growth and inflation projection would be highly contingent depending on the duration, spread and intensity of the pandemic. "Need of the hour is to shield the economy from the pandemic," Das added.
Meanwhile, liquidity adjustment facility (LAF) has been reduced by 90 bps to 4 per cent while cash reserve ratio (CRR) has been slashed by 100 bps to 3 per cent.
Recently, the US Federal Reserve had slashed the interest rates, bringing it near zero, in another emergency move to help shore up the US economy amid the rapidly escalating global coronavirus pandemic.
According to media reports other central banks have also taken similar actions to fight coronavirus. Reserve Bank of New Zealand (RBA), for instance, slashed interest rates by 75 basis points (bps) to a record low. Australia's central bank, the Reserve Bank of Australia, poured $3.6 billion in liquidity into Australia's financial system and said it was prepared to buy government bonds. In South Korea, the central bank cut its benchmark interest rate by 50 basis points in a rare inter-meeting action.