The RBI governor has finally announced measures to stabilize the financial system and help the economy to mitigate the risks of the pandemic. Participants were also keenly awaiting action from the apex bank, in line with the steps taken by other central banks across the globe.
The announced cut of 75 bps in REPO rate is higher than the market expectation as the majority were anticipating 50bps and that too during the MPC meet in April. And to make sure that it translates into business, they cut the reverse REPO rate by 90bps, to encourage banks to lend and improve the credit flows in the system rather than parking the deposits with the RBI. Further, the RBI cut CRR by 100bps to 3%. Above all, to directly touch the borrowers, they’ve gone for a 3-month moratorium to all the term loans and much-desired relief on interest on working capital.
It does not only save the urban middle class, industrial borrowers at large but also helps the banks (scheduled and cooperative) and NBFCs which are already dealing with the stress of rising NPAs. And that, in turn, would reflect into their stock prices too. In short, it’s a win-win situation for all.