RBI trims reverse repo rate; unveils slew of liquidity measures to cushion impact of COVID

Reserve Bank of India on Friday cut reverse repo rate and anunced a slew of measures including a re-finance window of Rs 50,000 crore and targetted long term repo auction of similar amount to deal with impact of COVID-19 pandemic. central bank's Goverr Shaktikanta Das assured that RBI will use all instruments at its disposal to deal with challenges posed by outbreak of vel coronavirus, depending on evolving situations. This is t last of anuncements. Based on evolving situations, central bank will come up with responses in future in interest of ecomy, he said.

RBI trims reverse repo rate

In a video mess, Das said in order to encour banks to deploy surplus funds in investments and loans in productive sectors of ecomy, it has been decided to reduce fixed-rate reverse repo rate under liquidity justment facility (LAF) by 25 basis points from 4 percent to 3.75 percent with immediate effect. reverse repo rate is rate banks earn by parking deposits with RBI. " policy repo rate remains unchanged at 4.4 percent, and marginal standing facility rate and bank rate remain unchanged at 4.65 percent," he said.

Surplus liquidity in banking system has risen significantly in wake of government spending and various liquidity enhancing measures undertaken by RBI, he ted. He also said that it has been decided to conduct targeted long-term repo operations (TLTRO 2.0) for an aggregate amount of Rs 50,000 crore, to begin with, in tranches of appropriate sizes. " funds availed by banks under TLTRO 2.0 should be invested in investment gre bonds, commercial paper, and n-convertible debentures of n-bank financial companies (NBFCs), with at least 50 per cent of total amount availed going to small and mid-sized NBFCs and micro finance institutions (MFIs)," he said.

He also anunced special refinance facilities for a total amount of Rs 50,000 crore to Nabard, Sidbi and National Housing Bank (NHB) to enable m to meet sectoral credit needs. "This will comprise Rs 25,000 crore to Nabard for refinancing regional rural banks, cooperative banks and MFIs; Rs 15,000 crore to Sidbi for on-lending/refinancing; and Rs 10,000 crore to NHB for supporting housing finance companies," he said. To provide greater comfort to states for undertaking Covid-19 containment and mitigation efforts, RBI anunced a 30 percent increase in ways and means vances limit.

It has been decided that in respect of all accounts for which lending institutions decide to grant moratorium or deferment, and which were standard as on March 1, 2020, 90-day NPA rm shall exclude moratorium period, i.e., re would an asset classification standstill for all such accounts from March 1, 2020 to May 31, 2020.

Pointing out that RBI is monitoring all macro parameters on a continuous basis, he said, ecomic activity has come to standstill during lockdown. impact of Covid-19 is t captured in index of industrial production (IIP) data for February, he said, ding that contraction in exports in March at 34.6 per cent is much more severe than global financial crisis of 2008-09. He said vehicle production and sales declined sharply in March and so did electricity consumption.

Appreciating effort of banks and or institutions in keeping financial market operational, Das said, re was downtime of internet or mobile banking during lockdown and banking operations were rmal. Banks, financial institutions have risen to occasion to ensure rmal functioning during outbreak of this pandemic, he ted. Providing relaxation to lenders, Das said banks shall be exempted from making dividend payment in light of financial difficulties posed by Covid-19.

On inflation front, he said consumer price index (CPI) based inflation has declined in March and it is expected to furr ease. RBI will take vant of falling price situation and pass on benefit to borrowers, he hinted. 

Inputs from PTI