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• 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.

• 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.

• 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.

• 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.

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

• The RBI extended the term loan moratorium and also relaxed the repayment terms (interest payments) to prevent a cash-squeeze for borrowers.

• The RBI Governor said the combination of fiscal, monetary and administrative measures will create conditions that will enable a gradual economic revival going forward.

• Economists say the transmission of lower interest rates by banks to their customers will be watched closely.

• “The RBI flagged risks of a negative growth print this year, while holding back on a point target. They expect disinflationary forces to dominate, suggest they open for further reduction in cuts,” said DBS Bank economist Radhika Rao.

• In March, the RBI had slashed the repo rate by 75 bps to stimulate growth, and the next month, it unexpectedly lowered the key deposit rate – or reverse repo rate – to 3.75 per cent, in a bid to discourage commercial banks from parking idle funds with it and spur lending.

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-RBI will monitor evolving situation continuously, use all its tool to deal with pandemic fallout.
-Loans given by NBFCs to real estate companies to get similar benefit as given by scheduled commercial banks.
-LCR requirement of banks brought down to 80% from 100%; to be restored in phases by April next year:
-Inflation is on a declining trajectory, could recede even further:
-Banks shall not make any dividend payments until further orders:
-NPA classification for banks will exclude the moratorium period:
-Economic activities have come to a standstill during lockdown:
– ₹50,000 crore special finance facility to be provided to financial institutions such as Nabard, Sidbi,
-No change in repo rate which is decided by MPC:
-Reverse repo rate cut by 25 bps to 3.75%.
New measures aimed at maintaining adequate liquidity in system, facilitate bank credit flow, ease financial stress.
-TLTRO 2.0 operations of ₹50,000 crore will be conducted.
-To maintain adequate liquidity in the system, we have decided to take additional measures.
-Redemption pressures faced by some mutual funds have moderated.
-Automobile production, sales declined sharply in March; electricity demand has fallen sharply.
-Covid-19 impact is not captured in IIP data for Feb.
-ATM operations stood at 91%, no downtime on internet and mobile banking: RBI
-India is expected to post sharp turnaround in 2021-22, says RBI Governor quoting IMF projection.
-IMF projection of 1.9% GDP growth for India is highest in G20, says RBI Governor Shaktikanta Das

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1. Repo rate reduced by 75 basis points to 4.4%
2. Rev repo reduced by 90 basis points to 4%
3. GDP growth for Q4 19-20 and FY 20-21 to be affected
4. Aggregate demand may weaken
5. Future outlook uncertain and negative
6. CRR reduced by 100 basis points to 3% for 1 year to release 1.37 lakh crores
7. Min daily CRR balance reduced from 90% – 80% till 30/06/2020
8. 3.74 lakh crore liquidity injected
9. 3 month moratorium on payment of instalments of Term Loan outstanding
10. Interest on WC facilities to be deferred by 3 months
11. Such deferment not to be considered for NPA
12. Revised DP calculations by reassessing WC cycle
13. All measures not to effect credit history
14. Total liquidity injection 3.4% of GDP

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The central bank announced Thursday it will buy longer-dated debt and simultaneously sell shorter maturity notes in a concept similar to Operation Twist used by the U.S. Fed in 2011-12. The move is aimed at bringing down the soaring cost of borrowing, or term premia — the difference between the benchmark 10-year yields and the central bank’s policy rate.

The new tool is part of the broader measures put in place by the RBI to bolster rate transmission after banks failed to fully pass on its 135 basis points of policy easing since February. The central bank has separately prodded banks to peg part of their loan books to external benchmarks such as treasury bills and the repurchase rate, and pumped in billions of dollars to keep liquidity in surplus in the banking system.

The policy easing cycle this year saw Das and his rate-setting panel deliver a rare 35 basis-point cut in August. The governor had then termed the move as neither “excessive” nor “inadequate.”

“Governor Das and his team are evidently open to experimenting with unconventional policy instruments,” said Saugata Bhattacharya, chief economist at Axis Bank Ltd. This is the “optimal approach” given the uncertain response from banks despite an environment of huge surplus liquidity, and yet stubbornly high credit costs.

Earlier this month, the six-member Monetary Policy Committee surprised markets by deciding to hold the repo rate steady at 5.15%, citing high inflation. The MPC, headed by Das, preferred to wait and watch for the previous rate cuts to trickle through before easing further.

“More steps are likely to smoothen the liquidity and credit premia aspects of the lending rates to hasten the pass-through of an easy monetary policy,” Radhika Rao and Eugene Leow, analysts at DBS Bank Ltd. in Singapore, wrote in a note.

Forex Swaps

Das has tried unconventional methods to manage liquidity before.

When the markets faced a cash shortfall in March, the RBI chose to do forex swaps instead of its traditional bond purchases.

It announced two swaps of $5 billion each in March and April, both of which were fully subscribed. By doing this, the RBI managed to tackle two issues: inject rupee liquidity and bring down elevated forward premia rates and reduce hedging costs.

Unlike his predecessor Urjit Patel, Das is known for widespread consultations with market participants.

Some in the market had suggested ‘Operation Twist’ as a way to pass on more of the central bank’s five rate cuts to businesses and individual borrowers. With investment and consumption weak in India, Das hasn’t dithered about measures to spur credit and lift economic growth from a six-year low.

“Unconventional problems require unconventional measures,” said Sandeep Bagla, associate director at Trust Capital Services India. “Generally, central bankers have limited influence on the longer end of the curve, which is determined more by the inflation and fiscal dynamics. But in the short run, the RBI intervention can help to reduce the steepness.”

Not all are convinced about the effectiveness of the move. A central bank experiments with such maneuvers only after extinguishing conventional monetary policy options, according to a note by ICICI Securities Primary Dealership. There could be adverse unintended consequences if the RBI adopts these measures, it said.

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