Corona Pandemic Forces RBI To Extend EMI Moratorium, Cut Repo Rate To 4%
In yet another off-cycle policy announcement on May 22, 2020, the Reserve Bank of India (RBI) has reduced the repo rate to an all-time low of 4%, while also extending by three months an EMI moratorium on term loans it had announced in March.
The RBI move comes in the wake of various global rating and monetary agencies predicting a contraction for the Indian economy, for the first time in more than four decades as the Coronavirus pandemic exacts extraordinary human and monetary costs. The six-member Monetary Policy Committee (MPC) of the RBI was scheduled to make an announcement in early June.
The 40-basis-point cut in repo rate follows a 75-basis- point reduction by the banking regulator on March 27, 2020.
In order to offer relief to borrowers amid a government imposed lockdown in the country to arrest the contagion, the Reserve Bank of India (RBI) also extended the moratorium on principal and interest payments on term loans till August 31, 2020.
“The RBI on its part is showing seriousness towards the health of economy. Now we hope that banks pass on the benefit to the buyers quickly. The demand for homes will increase further, as home loan interest rates will come down to a historic low. It is good news for the real estate sector,” said Vikas Bhasin, CMD, Saya Homes.
“Banks should take a leaf out of this and extend loans to real estate sector, which in turn will play a role in economy growth,” added Harvinder Singh Sikka, MD, Sikka Group.
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With the change in the repo rate, the reverse repo rate stands reduced to 3.35%. With an aim to infuse more liquidity into the system, the central bank had also cut cash reserve ratio by 90 bps to 3%.
For the uninitiated, repo rate is the rate at which the RBI lends money to the banks, while reverse repo rate is the rate at which it borrowers money from banks. Cash reserve ratio is the percentage of liquidity banks have to keep with the RBI without earning any interest on it.
Amid growing fears of the Indian economy hitting a record low in 2020 the government has in the past couple of days announced several measures to support growth.
The RBI has also announced additional infusion of Rs 3.74 trillion into the banking system, bringing the overall amount to Rs 6.5 trillion, to deal with the rippling effects of the outbreak.
Current Key Rates
|Date||Repo Rate||Reverse Repo Rate||CRR||SLR|
|Sep 2015||6.75%||5.75%||No Change||No Change|
|Jun 2015||7.25%||6.25%||No Change||No Change|
Source: RBI website