The RBI (Reserve Bank of India) has released its 7th Bi-monthly policy for FY 2019-2020. The Monetary Policy Committee (MPC) was led by RBI Governor Shaktikanta Das. In view of the COVID – 19 Pandemic, the Monetary Policy Committee (MPC) meeting was advanced to March 25 – 27, 2020. Earlier, it was scheduled for March 31 – April 3, 2020.
During the seventh Bi-monthly Monetary Policy meeting, the MPC voted unanimously for a sizeable reduction in the policy repo rate and for maintaining the accommodative stance of monetary policy as long as necessary to revive growth, mitigate the impact of COVID-19 while ensuring that inflation remains within the target. While there were some differences in the quantum of reduction, the MPC voted with a 4-2 majority to reduce the policy rate by 75 basis points to 4.4 per cent.
Monetary Policy announcements
- The RBI has decided to reduce the policy repo rate under the LAF (Liquidity Adjustment Facility) by 75 basis points to 4.40 % from 5.15%.
- Consequently, the reverse repo rate under the LAF has been reduced by 90 basis points to 4.00 %.
- The marginal standing facility (MSF) rate and the Bank Rate remains now stands at 4.65 %.
- Reserve Bank will conduct auctions of targeted term repos (TLTRO) of up to three years tenor of appropriate sizes for a total amount of up to ₹ 1,00,000 crore at a floating rate, linked to the policy repo rate. Liquidity availed under the scheme by banks has to be deployed in investment-grade corporate bonds, commercial paper, and non-convertible debentures over and above the outstanding level of their investments in these bonds as on March 25, 2020.
- Accommodation under the Marginal Standing Facility to be increased from 2% from SLR to 3% with immediate effect till June 30. It will release Rs ₹ 1,37,000 crore into the system.
- Measures relating to TLTRO, CRR, and MSF will inject total liquidity of ₹ 3.74 lakh crore to the system.
- Cash Reserve Ratio (CRR) of all banks reduced by 100 basis points to 3% of Net Demand and Time Liabilities (NDTL) with effect from the fortnight beginning March 28, 2020, for a period of 1 year.
- A three-month moratorium for on payment of EMIs on all term loans that were outstanding on March 31, 2020. EMIs will resume after the moratorium period gets over. But Credit Card dues won’t be considered for this moratorium.
Read more about the instruments of Monetary Policy.