Friday, April 17, 2020

India cuts reverse repo 2nd time, new long-term loans

     India's central bank kept its benchmark repo rate steady at 4.40 percent but lowered its reverse repo rate by another 25 basis points to 3.75 percent to encourage banks to deploy a surplus of liquidity in the banking system to businesses following large injections of funds by itself and the government.
     "Today, humanity faces perhaps the trial of its time as COVID-19 grips the world in its deadly embrace," RBI Governor Shaktikanta Das said in a video written statements, adding:
     "Everywhere, as also in India, the mission is to do whatever it takes to prevent epidemiological curve from steepening any further."
      Das said there had been few data releases since March 27, when the policy rate was cut, so a comprehensive assessment of the economy was not possible.
     However, he said the contraction of exports in March of 34.6 percent was "much more severe than during the global financial crises," and inflation is likely to recede even further and could settle well below RBI's 4.0 percent target by the second half of the 2020-21 year.
     "Such an outlook would make policy space available to address the intensification of risks to growth and financial stability brought on by COVID-19," Das said. "This space needs to be used effectively and in time."
      Last month the Reserve Bank of India (RBI) cut its repo rate by 75 basis points and the reverse repo rate by 90 points, and with today's cut, it has now lowered the reverse repo rate by a total of 115 points this year.
      RBI also last month decided to carry out targeted long term repo operations (TLTRO) of up to to 3 years for a total of 1 trillion rupees at the policy rate.
     Today RBI launched another round of stimulus measures, including a second round of long term repos, known as TLTRO 2.0 worth another 500 billion rupees, with the funds being deployed in investment grade bonds, commercial paper and non-convertible debentures of non-banking financial companies. At least half of the funds will be invested in micro finance institutions and non-banking financial firms.
      To improve the cash flow of financial institutions, RBI lowered the liquidity coverage ratio to 80 percent from an earlier 100 percent. However, the ratio will then be raised back up to 90 percent by October 1 and then fully restored by April 1, 2021.
      Das also said 500 billion rupees would be made available through a special refinancing facility to regional rural banks, the national housing banks and small industries development bank.



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