RBI to ensure adequate liquidity in system; cuts reverse repo rate by 25 bps

The Reserve Bank of India Governor Shaktikanta Das on Friday said the central bank will ensure adequate liquidity in the system to ease the financial stress caused by the Covid-19 pandemic. The central bank reduced the reverse repo rate, the rate at which banks park their fund with the central bank, by 25 basis points to 3.75 per cent. This will encourage banks to lend to the productive sectors of the economy.

With regard to other measures, Das said RBI will begin with giving an additional Rs 50,000 crore through targeted long-term repo operation (TLTRO) to be undertaken in tranches. Besides, he announced a re-financing window of Rs 50,000 crore for financial institutions like Nabard, National Housing Bank and Sidbi. He further said surplus liquidity in the banking system has increased substantially as result of central bank's actions. Stating that the RBI is monitoring the situation developing out of Covid-19 outbreak, he noted that the contraction in exports in March at 34.6 per cent was much more severe than global financial crisis of 2008-09.

He said, India is expected to post a sharp turnaround in the financial year 2021-22. Quoting projections made by the International Monetary Fund (IMF), Shaktikanta Das said the IMF's projection of 1.9 per cent GDP growth for India is the highest among G-20 nations. Das said the RBI is regularly monitoring the situation that is developing out of the Covid-19 outbreak and from time-to-time is making announcement.

Key Points

• It has been decided to provide special refinance facilities for an amount of Rs 50,000 crores to National Bank for Agriculture & Rural Development, Small Industries Development Bank of India, and National Housing Bank to enable them to meet sectoral credit needs.
• It has been decided to reduce the fixed reverse repo rate under liquidity adjustment facility (LAF) by 25 basis points from 4% to 3.75%, with immediate effect.
• Loans given by NBFCs to real estate companies to get similar benefit as given by scheduled commercial banks Contraction in exports in March 2020 at 34.6%, turned out to be much more severe than during the Global Financial Crisis. However, amidst all this, the level of Forex Exchange Reserves which we have continue to be robust.
• IMF Economic Counsellor has named it 'The Great lockdown' estimating cumulative loss to global GDP over 2020-21 at around 9 trillion US dollars, which is greater than the economies of Japan & Germany combined. On April 14, International Monetary Fund (IMF) released its global growth projections revealing that in 2020, the global economy is expected to plunge into the worst recession since 'The Great Depression'.
• For 2020-21, International Monetary Fund projects sizable reshaped recoveries, close to 9 percentage points for the global GDP. India is expected to post a sharp turnaround & resume its pre-covid, pre-slowdown trajectory by growing at 7.4% in 2020-21. Since March 27, the macroeconomic and financial landscape has deteriorated precipitously in some areas, but light still shines through bravely in some others.