RBI Press Conference Highlights

Hello Investors,

1. Repo rate cut from 5.15% to 4.40% (75 bps cut). This will also help in effective transmission mainly to retail and MSME loans, as these loans need to be benchmarked to external rates and repo rate is the core rate
2. The reverse repo rate has been lowered to 4% in order to boost credit flow in the system rather than parking money with RBI
3. The growth outlook for 2020 and 2021 is at risk mainly on account of the intensity and magnitude of virus spread and the fear of recession
4. INR 1 tn of Targeted Long Term Repo Operations (TLTRO) is provided to banks which compulsorily need to be invested in investment-grade bonds and commercial papers. This will provide the necessary liquidity to the bond where the yields had spiked in the recent past for lack of liquidity
5. CRR has been reduced to 3% (100 bps cut) to infuse additional liquidity of INR 1.37 tn in the system. Also, accommodation under MSF increased to 3% which provides another INR 1.37 tn in the system
6. All the above measures will likely inject INR 3.74 tn in the system
7. 3 months of moratorium has been allowed on all installments of term loans including retail loans
8. Deferment of interest is allowed on working capital loans provided to businesses for 3 months

Thus the RBI has unleashed its Bazooga in order to provide necessary liquidity into the system in order to maintain the financial stability to the system. This should lead to confidence in the financial markets and may arrest the increased selling witnessed in the past 1 month. The above measures along with the welfare schemes announced by the Government yesterday should provide confidence, that necessary support will be provided both from the fiscal and monetary policy end, in order to build confidence in the system. However, the economic impact on account of lockdown and the spread of the virus cannot be ignored and thus it will keep the financial market participants on the edge.