RBI follows global central banks, cuts repo by 75 bps to fight coronavirus

The move comes after the global central banks have been cutting rates to help shore up the economy amid coronavirus pandemic

Following in the footsteps of global central banks, the Reserve Bank of India (RBI) on Friday lowered the key repo rate by 75 basis points (bps) to 4.4 per cent, to help arrest the economic slowdown in the wake of the coronavirus (Covid-19) outbreak. 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. 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 governor informed that the members of the MPC met on March 24, 25 and 27. “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. Earlier, the US Federal Reserve had lowered 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. The Fed had cut interest rates by half a percentage point on March 3, too, in its first emergency cut since the financial crisis of 2008.