New Delhi: The RBI, Reserve Bank of India Governor, Shaktikanta Das, in a surprise announcement, has decreased its repo rates from 4.4% to 4%, on Friday. The repo rates are the interest rates at which the RBI grants money to the commercial banks. This move will allow the banks to give ease to the loan borrowers and reduce their burden. The act has made loans cheaper and extended the freeze period of loans, which permits banks to postpone EMI payments by their customers, by 3 months (August).
The announcements hoped to fight against the decreasing economy of the country, battered due to the coronavirus pandemic. The lockdown caused due to it has left thousands of people jobless and even shut many businesses.
In his first address to the media after the government’s last announcement of the Rs 20.97 lakh crore package, Mr Das said that the economy is expected to stay low in the current financial year due to the COVID-19 outbreak. He Das added that headline increase may remain firm in the first half of the current financial year and only ease in the later part of the year.
RBI also announced a decrease in the reverse repo rate, the interest rate at which the RBI borrows funds from commercial banks, from 3.75 per cent to 3.35 percent.
Five members of the Monetary Policy Committee (MPC) voted in support of rate reduction, RBI Governor Shaktikanta Das said through a video briefing.
It planned to continue the “accommodative” policy, which means the central bank is ready to give reliefs in the financial policy further to support the system.
The RBI extended the term loan moratorium and also relaxed the repayment terms (interest payments) for borrowers as an aid during the pandemic.
The RBI Governor said, “Combination of fiscal, monetary and administrative measures will create conditions that will enable a gradual economic revival, going forward.”
Meanwhile, according to economists, the provision of lower interest rates by banks to their customers will be done under close observation.
“The RBI flagged risks of a negative growth print this year, while holding back on a point target. They expect disinflationary forces to dominate, suggest they open for further reduction in cuts,” said DBS Bank economist Radhika Rao.
In March, the RBI had cut the repo rate by 75 bps to fuel growth, and the very next month, it unexpectedly lowered the key deposit rate (reverse repo rate) to 3.75 per cent, in an attempt to discourage commercial banks from keeping inactive funds with it and encourage lending.