RBI cuts reverse repo rate by 25 bps to 3.75% to encourage banks to lend more

Mumbai: The Reserve Bank of India (RBI) on Friday cut the reverse repo rate from 4% to 3.75% but has kept the repo rate, the benchmark interest rate, unchanged, its governor Shaktikanta Das announced in his media briefing.

Shaktikanta Das made the announcement during his second address to the media since the nationwide lockdown was imposed from March 25.

This is also the second time the central bank is cutting the reverse repo rate at which it borrows from the commercial banks in the country since March 27 in the midst of the coronavirus pandemic.

RBI had reduced the reverse repo rate by 90 bps to 4% that day in an out-of-turn move. The RBI governor had also cut the repo rate by 75 basis points to 4.4%, the lowest in at least 15 years, in an effort to rescue a slowing economy now affected by the spreading coronavirus pandemic.

It was the first time in five years that the RBI has acted outside the scheduled dates for policy meetings. The last time RBI announced cut rates in an out-of-turn move was in March 2015 following a budget announcement.

Das also said in his address of Friday that the central bank has been very proactive and has been monitoring the situation very closely.

“Human spirit is ignited by the resolve to curb the pandemic. It is during our darkest moments that we must focus on the light,” he said.

The RBI governor’s address also came a day after Prime Minister Narendra Modi reviewed the impact on the Indian economy of the coronavirus disease (Covid-19) and the ongoing national lockdown aimed at limiting its spread in a meeting with finance minister Nirmala Sitharaman.

The meeting between PM Modi and Nirmala Sitharaman came against the backdrop of demands by industry bodies of a package anywhere between Rs 14 lakh crore and Rs 16 lakh crore to revive the economy. There’s been little economic activity since the lockdown was declared on March 25.

There has been some easing of restrictions since, and more will be eased on April 20, especially for manufacturing facilities in economic enclaves and businesses focused on rural India, but the lockdown is to continue till May 3.