RBI Makes Loans Cheaper, Offers Big Relief On Interest Payments Too

RBI Makes Loans Cheaper, Offers Big Relief On Interest Payments Too

The central bank simultaneously reduced the reverse repo rate to 3.35 per cent.

Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday announced a reduction in the repo rate to 4 per cent from the existing 4.4 per cent in a surprise move to support the economy. That marked the second cut in the repo rate – or the key interest rate at which the RBI lends short-term funds to commercial banks – so far this year, in a move that will allow banks more room to lower the EMI burden for their borrowers. The RBI Governor also extended the loan moratorium – which allows banks to defer EMI payments by their customers – by another three months till August.

Here are 10 things to know about this big story:

  1. The announcements were aimed at countering the fallout from the ongoing nationwide lockdown to contain the spread of the coronavirus pandemic, which has pushed the economy into a standstill, hurt businesses and landed thousands jobless.

  2. In his first address to the media after the government detailed the fiscal and monetary stimulus worth Rs 20.97 lakh crore, Mr Das said economic is expected to remain in the negative territory in the current financial year, due to the COVID-19 outbreak.

  3. While the repo rate was reduced to 4 per cent, the reverse repo rate – the interest rate at which the RBI borrows funds from commercial banks – was lowered to 3.35 per cent from 3.75 per cent.

  4. The committee decided to continue with its “accommodative” stance of policy, which means the central bank is ready to ease monetary policy further to support the financial system.

  5. Five members of the Monetary Policy Committee (MPC) voted in favour of rate reduction, RBI Governor Shaktikanta Das said through a video address. 

  6. The RBI extended the term loan moratorium and also relaxed

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