RBI MPC Key highlights: Rates cut; loan repayments deferred; RBI infuses Rs 3.74 lakh crore

The Reserve Bank of India’s Monetary Policy Committee (MPC) met today to discuss steps to counter the slowdown induced by the COVID-19 outbreak and the subsequent economic lockdown.

The meeting of the six-member MPC took place virtually, and for the first time outside its bi-monthly calendar since the committee was formed in February 2016.

Here are the key highlights:

  • In view of COVID-19 pandemic, MPC advanced its meeting and met on March 24, 26 and 27.
  • MPC voted by 4:2 majority to reduce policy repo rate by 75 bps to 4.4 percent, and reverse repo rate by 90 bps.
  • Cash reserve ratio cut by 100 basis points to 3 percent
  • SLR to be reduced by 3 percent
  • Total measures will result in total liquidity injection of Rs 3.74 lakh crore to system
  • All banks including scheduled commercial banks, local area banks, small finance banks, regional rural banks, non-banking financial companies, housing finance companies permitted to allow a moratorium of 3 months on payment of installments as of March 1, 2020
  • In respect of working capital facilities sanctioned in the form of cash credit/overdraft, lending institutions are being permitted to allow a deferment of three months on payment of interest in respect of all such facilities outstanding as on March 1, 2020. The accumulated interest for the period will be paid after the expiry of the deferment period.
  • LTRO money can be invested in commercial paper, which will not be marked-to-market, and will be classified as held-to-maturity
  • CRR daily maintenance level to be reduced to 80 percent
  • Rs 1.37 lakh crore to be released into system because of CRR reduction
  • Incremental capital conservation buffer implementation deferred from March 30, 2020 to Sep 30, 2020
  • “The decision of MPC was warranted by disruptive force of Coronavirus,” says RBI Governor Shaktakanta Das.
    “We have quarantined 150 of our staff as part of our business continuity plan.”
  • India’s H2 GDP growth target of 4.4 percent is at risk. FY21 outlook is highly uncertain
  • Inflation may weaken because of fall in demand
  • “Have seen some withdrawals from small private sector banks. Want to reassure everyone that banks are completely safe”.

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