A quick look at RBI's measures to arrest Covid-19 slowdown

A day after Finance Minister Nirmala Sitharaman announced a Rs 1.7-trillion food-security and money-transfer package for the urban and rural poor, the Reserve Bank of India (RBI) also announced several measures to check the slowdown amidst the coronavirus pandemic.

Here's a quick look at the measures announced by RBI governor Shaktikanta Das while addressing the media on Friday.

Let’s begin with the highlights:

The RBI has reduced the repo rate by 75 basis points (bps) to 4.4 per cent, and the reverse repo rate by 90 bps which now stands at 4 per cent.

As you might already know, repo rate is the rate at which a country’s central bank, which means the RBI, lends money to commercial banks.The reverse repo rate is the rate at which it borrows from them.

The development comes after the MPC voted 4:2 in favour of the reduction of the repo rate, during meetings on March 24, 25 and 27.

Earlier, the US Federal Reserve lowered the interest rates twice. First, by half a percentage point to a target range of 1.00 per cent to 1.25 per cent, on March 3, and now, it stands 0-0.25 per cent, down by 100 bps.

Other central banks, too, have taken sweeping actions to fight the coronavirus. Reserve Bank of New Zealand (RBA), for instance, slashed interest rates by 75 basis points (bps) to a record low. Australia's central bank, the Reserve Bank of Australia, poured $3.6 billion in liquidity into Australia's financial system and said it was prepared to buy government bonds. In South Korea, the central bank cut its benchmark interest rate by 50 basis points in a rare inter-meeting action.

Apart from rate cuts, RBI has also announced a number of liquidity infusion measures, which include putting Rs 3.74 trillion of liquidity in the banking system. The total liquidity infusion by the central bank due to coronavirus stress now amounts to an unprecedented Rs 6.5 trillion.

It has also imposed a moratorium on principal and interest payments for three months and told banks and non-banking finance companies that that non-payment won’t be considered as non-performing assets (NPA).

RBI gave banks excess liquidity of up to Rs 1 trillion to specifically invest in corporate bonds and commercial papers. The central bank has also cut the cash reserve ratio (CRR) to 3 per cent from 4 per cent of the deposit base.

In another significant move, the RBI said domestic banks will now take part in offshore rupee markets, or non-deliverable forwards (NDF) a move that allows the RBI to directly intervene in these markets to contain rupee volatility.

On Thursday, Finance Minister Nirmala Sitharaman also announced a relief package for the poor and migrant workers in the country under the Prime Minister Gareeb Kalyan scheme.
The scheme worth Rs 1.7 trillion has two parts — cash transfer and food security to take care of the welfare concerns of the poor and migrant workers who have been suffering because of a nationwide lockdown.