In the recent meeting of the Monetary Policy Committee (MPC), several measures were taken up in a move to fight the economic impact of the countrywide lockdown to check the spread of novel coronavirus.
Key takeaways:
It allowed the equated monthly instalments (EMIs) to be deferred by three months.
Since non-payment will not lead to non-performing asset classification by banks, there will be no impact on credit score of the borrowers.
The repo rate was reduced to by 75 bps to 4.4% while the reverse repo rate was cut by 90 bps point to 4%.
Reduced reverse repo rate will help banks to lend more rather than keeping their excess liquidity with the RBI.
RBI has also reduced the cash reserve ratio of banks, thus increasing liquidity.
Important value additions:
Monetary Policy Committee
It is responsible for fixing the benchmark interest rate in India.
The meetings are held at least 4 times a year.
The committee comprises six members – three officials of the Reserve Bank of India and three external members nominated by the Government of India.
Repo Rate
It is the rate at which the Reserve Bank of India lends money to commercial banks in the event of any shortfall of funds.
It is used by monetary authorities to control inflation.
Reverse Repo Rate
It is the rate at which the Reserve Bank of India borrows money from commercial banks of the country.
It can be used to control the money supply in the country.
Cash Reserve Ratio
It is the share of a bank’s total deposit that is mandated by the Reserve Bank of India (RBI) to be maintained with the latter in the form of liquid cash.
