Coronavirus Outbreak: RBI cuts Interest Rate by 75 bps, EMIs on hold

Shaktikanta Das

Shaktikanta DasA day after the Union finance minister Nirmala Sitharaman announced a Rs 1.7 lakh crore package in a bid to combat the impact of the 21-day coronavirus lockdown, the Reserve Bank of India (RBI) Governor Shaktikanta Das today reduced the interest rates by 75 basis points to 4.4 percent. He also announced several measures to instil Rs 3.74 lakh crore liquidity into the system.

The RBI stated that it was maintaining its “accommodative” stance, and would keep doing so “as long as necessary” to revive growth while ensuring inflation is secured within the target.

Comments on RBI’s announcement from Industry Experts:

Thomas John Muthoot, Chairman and Managing Director, Muthoot Pappachan Group.

“The health emergency and the impact of the same on the economy, particularly on the common man, is unprecedented. At the same time, our economy has been facing a downturn for some time now.  In spite of a not-so-robust fiscal situation, the measures announced by the FM yesterday and by the RBI today, are indeed bold and explicitly reflect Govt’s resolve to face the health & the economic crises head-on, with special focus on the distress of the common man. Large repo rate cut of 75 basis points announced by RBI, with accommodative stance, will certainly help in boosting the lending scenario ultimately empowering the common man. The moratorium for banks and NBFCs on term loan instalments and interest on working capital for up to 3 months will also provide some relief as many individuals, especially self-employed ones, are facing income loss due to the ongoing lockdown. Various measures to nudge banks to lend and to inject liquidity into the system, will help in passing the benefit to the potential borrowers – the people with small businesses, self-employed and so on, in a dire situation right now, with everything shut-down. We stand united amidst the current extraordinary circumstances and will continue to focus on supporting our customers – the common man -to help fulfil their financial needs.”

Shishir Baijal, Chairman & Managing Director, Knight Frank India

“We are delighted with the Reverse Bank’s announcements which has far exceeded the expectations of the industry. The apex bank has checked all the required boxes of rate cut, liquidity infusion and moratorium. These steps will help the economy to stay stable despite the lockdown and economic disruption.

The sharp repo rate cut of 75 bps by RBI is a step in the right direction. Sharper cut in reverse repo rate by 90 bps will compel banks to lend instead of parking surplus liquidity with the RBI. The cut in CRR by 100 bps and the TLTRO will infuse liquidity in the systems, which seems to be the crying need of the hour. The moratorium of 3 months for all term loans and deferment of interest on working capital by 3 months will be very helpful at this point when most businesses are unable to have a steady cash flow.

We are hopeful that these measures will be complemented by further fiscal stimulus measures by the Central and State Governments to support demand in the economy. We welcome these measures by RBI and see this as a big relief for the economy in general and for the real estate sector which would have been one of the worst affected owing to its linkages with the overall economy”.

Ashok Mohanani, Chairman EKTA World and Vice President, NAREDCO Maharashtra

“After keeping the repo rate unchanged for 2 consecutive times, RBI has decided to cut the rate by 75 bps at the time of need to continue with the accommodative stance as long as it is necessary to revive economy. Today’s announcement infused some assurance in the mind of the panicked citizens that the economy will revive back in the short run and the banking sector is safe and sound. With the reverse repo rate cut by 90 bps helps keep a balance of liquidity amongst banks which largely acts as a reassurance factor to the borrowers. Major announcements like the moratorium of three – months by banks and lending institutions, the accessibility and opportunity of deferred interest on working capital and a total liquidity injection of Rs 3,74 lakh crore to the system will help prevent financial stress on the borrowers. The announcement is seen as a great move that at large is looked towards boosting the growth and maintaining financial stability while keeping inflation in the mandated range. The action will result in injecting substantial liquidity, keep the credit flow stagnant and help at regaining the trust of people on banks.”

Dr Joseph Thomas, Head of Research – Emkay Wealth Management

“ The RBI announcement is inclusive of all the possible actions from a monetary policy perspective, like the rate action to bring down policy rates directly, liquidity action to support the effective transmission of lower rates to ultimate users of credit, and a number of regulatory and developmental measures. The measures have addressed all the fundamental issues in a comprehensive manner using both conventional measures like cut in the repo rate to the tune of 75 bps and the CRR cut of 100 bps, and also substantial liquidity measures, apart from actions like access to domestic banks in offshore currency NDFs. The relief given on the repayments in term loans is indeed a very timely action and would serve to remove a lot of stress which a large number of borrowers may face in the coming days. This is a direct and targeted approach to the fluid situation in the face of an uncertain inflation and growth trajectory. This scaffolds the positive impact of the fiscal measures and strengthens our response to the adverse economic impact of the pandemic.”

 

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