RBI reduces reverse repo rate by 25 basis points to 3.75%

Following the central government’s decision to extend the nationwide lockdown till May 3, the Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday announced a string of relief measures for the stressed banking and financial sector. Das announced a cut in the reverse repo rate by 25 basis points (bps) to 3.75 per cent. However, he kept the repo rate unchanged.

In terms of other measures, the governor said that RBI will begin with giving an additional Rs 50,000 crore through targeted long-term repo operation (TLTRO) to be undertaken in tranches. Apart from this, he announced a re-financing window of Rs 50,000 crore for financial institutions like NABARD, National Housing Bank and SIDBI.

In his speech, the RBI governor said that the central bank will ensure adequate liquidity in the system to ease the financial stress caused by the COVID-19 pandemic.

Das said that the central bank is closely monitoring the situation developing out of COVID-19 outbreak. He added that banks and financial institutions have risen to the occasion to ensure normal functioning during the outbreak of the pandemic.

He also said that the projection by the International Monetary Fund (IMF) of 1.9 per cent GDP growth for India is highest in the G20. Das, quoting IMF projection, said India is expected to post a sharp turnaround in 2021-22.

Speaking about the industrial growth data, the central bank governor said that the impact of COVID-19 outbreak was not captured in the Index of Industrial Production (IIP) data for the month of February, which was released earlier this month. The IIP had expanded by 4.5 per cent on-year to 133.3 in February.

Speaking on the inflation data, Das said that it is on a declining trajectory and could fall below RBI’s 4 per cent target by the second half of this fiscal. He pointed out that the consumer price index (CPI) or the retail inflation has fallen by 170 bps from its January 2020 peak. The retail inflation for March fell to a four-month low of 5.91 per cent, while the wholesale inflation eased to 1 per cent.

Das added that such an outlook would make policy space available for addressing the intensification of growth risks and financial stability brought about by COVID-19.

In his nearly 30-minute long speech, Das also mentioned that automobile production and sales declined sharply in the month of March and the demand for electricity has fallen sharply. Speaking about the exports, he said the contraction in exports in March at 34.6 per cent was more severe than the global financial crisis of 2008-09.

About the day-to-day banking operations, Das said that there has been no downtime of the internet or mobile banking during the ongoing lockdown and the banking operations normal. He also said that the surplus liquidity in the banking system has increased substantially as a result of the central bank’s actions.

This was the second time that the governor addressed the media since the nationwide lockdown was imposed from March 25.

On March 27, the RBI held a historic pre-term Monetary Policy Committee (MPC) meeting where the repo rate was cut by a record 75 bps. The repo rate was reduced to a 15-year-low of 4.40 per cent and was also the steepest cut since October 2004.

On the same day, the central bank cut the cash reserve ratio by 100 bps to 3 per cent apart from announcing various measures to boost liquidity in the system.

– with inputs from PTI