The Reserve Bank of India (RBI) cut its reverse repo rate by 25 basis points to encourage banks to deploy excess funds within the system toward lending and help revive growth in the country, its governor Shaktikanta Das said on Friday.
Shaktikanta Das made the announcement during his second address to the media, since the nationwide lockdown was imposed from March 25, that the central bank had cut its reverse repo rate to 3.75% with immediate effect.
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“On April 15, the amount absorbed under reverse repo operations was Rs 6.9 lakh crore. In order to encourage banks to deploy these surplus funds in investments and loans in productive sectors of the economy, it has been decided to reduce the fixed-rate reverse repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 4.0 per cent to 3.75 per cent with immediate effect,” Das said.
He added that repo rate will remain unchanged at 4.40% and that the marginal standing facility rate and the bank rate will also remain unchanged at 4.65%.
This is also the second time the central bank is cutting the reverse repo rate at which it borrows from the commercial banks in the country since March 27 in the midst of the coronavirus pandemic.
RBI had reduced the reverse repo rate by 90 bps to 4% that day in an out-of-turn move. The RBI governor had also cut the repo rate by 75 basis points to 4.4%, the lowest in at least 15 years, in an effort to rescue a slowing economy now affected by the spreading coronavirus pandemic.
It was the first time in five years that the RBI has acted outside the scheduled dates for policy meetings. The last time RBI announced cut rates in an out-of-turn move was in March 2015 following a budget announcement.
Das also said in his address of Friday that the central bank has been very proactive and has been monitoring the situation very closely.
“Human spirit is ignited by the resolve to curb the pandemic. It is during our darkest moments that we must focus on the light,” he said.
The RBI governor’s address also came a day after Prime Minister Narendra Modi reviewed the impact on the Indian economy of the coronavirus disease (Covid-19) and the ongoing national lockdown aimed at limiting its spread in a meeting with finance minister Nirmala Sitharaman.
The meeting between PM Modi and Nirmala Sitharaman came against the backdrop of demands by industry bodies of a package anywhere between Rs 14 lakh crore and Rs 16 lakh crore to revive the economy. There’s been little economic activity since the Covid-19 lockdown was declared on March 25.
There has been some easing of restrictions since, and more will be eased on April 20, especially for manufacturing facilities in economic enclaves and businesses focused on rural India, but the lockdown is to continue till May 3.