Reserve Bank of India Governor Shaktikanta Das on Friday announced that it has voted for a massive reduction in repo rate in the wake of Coronavirus pandemic and to lessen the economic risks.
RBI's Monetary Policy Committee (MPC) voted in favour of an interest rate cut to the tune of 75 basis points, which brings the repo rate down to 4.4 per cent from 5.15 per cent.
The reverse repo rate was cut by 90 bps to 4 per cent, creating an asymmetrical corridor.
The decision for "a sizeable reduction" in the policy repo rate, according to the RBI Governor was taken to "revive growth and mitigate the impact of COVID-19 and ensure financial stability."
The central bank also put on hold EMI payments on all term loans for three months and cut interest rate by steepest in more than 11 years as it joined the government effort to rescue a slowing economy that has now got caught in coronavirus whirlwind.
Further, it reduced the cash reserve ratio maintained by the banks for the first time in over seven years. CRR for all banks was cut by 100 basis points to release Rs 1.37 lakh crore across banking system.
Das said living in an extraordinary situation, war efforts need to be mounted against Coronavirus using conventional and unconventional tools.
The RBI Governor predicted a big global recession and said India will not be immune. It all depends how India responds to the situation, he said.
The liquidity measures announced include auction of targeted long-term repo operation of 3-year tenor for the total amount of Rs 1 lakh crore at floating rate and accommodation under Marginal Standing Facility to be increased from 2 per cent to 3 per cent of Statutory Liquidity Ratio (SLR) with immediate effect till June 30.
Combined, these three measures will make available a total Rs 3,74,000 crore to the country's financial system.
Das said that financial markets are under stress and require steps by the central bank for market stability and revival of economic growth.
The announcement comes a day after the Centre announced Rs 1.70 lakh crore relief package to help poor people in the wake of lockdown imposed due to the Coronavirus outbreak.