COVID-19 roles in RBI Rate cuts

From March first week the spreading of COVID-19 increased hugely till now. In India the COVID-19 causes a huge economical drop almost in all fields. The COVID-19 made a great swing in Indian stock markets. The shares and stocks are very highly affected by the spreading of COVID-19. The RBI came out and stated to other banks that don’t install any loans for 3 months because the bps is 75. Due to the corona impact MPC(monetary policy committee) advanced their meetings to set before from the scheduled date to 24,26 and 27 and voted4:2 to cut the repo rate to 4.4 percent which was imported by Governor of RBI Mr.Shaktikanta Das. At the same time banks keep their excess funds with the RBI, was lowered by90 basis points, to make it relatively unattractive for banks to passively deposit funds with the Reserve Bank of India.

Inflation Vs growth

Projections of growth and inflation will be heavily contingent on the intensity, spread and duration of COVID 19. Food inflation will come likely crash in the upcoming months. Apart from agriculture other sectors come to worse in stock market. Precisely for these reasons MPC refrained from giving the specific growth and inflation members.

Banks’ Co-operation

Recently the Chairman of SBI Mr.Rajnish kumar said that to media the SBI will not provide any loan installments for 3 months. They asked customers not to ask the loan installments for 3 months due to having the critical situation economically. In the absence of the healthy credit pickup, banks have been closed 3 trillion on a daily average under the reverse repo. RBI termed that this is the extraordinary situation in which everything hinges on the depth of the COVID 19 outbreak its spread and its duration. Clearly a war effected is mounted on the stock market against corona in India.

Life in the time of COVID 19 has been one of unprecedented loss and isolation. The bond market also mostly surprised by the move of RBI. Bond yields rallied bby 30-35 bps on the short end, and 15 bps on the long end after the announcement from Reserve bank of India.

EMI relief – 3 Months

Due to the hazardous spreading of corona virus the people are strictly stay at home for the safety purposes. So, they couldn’t continue their work and salary is locked down for 3 months. So, the rural and middle class people can not pay to the EMI. The RBI told to all banks and financial companies, including house loans companies to allow a moratorium for 3 monthson payment of installments and this applicable for all term loans including agricultural term loans and retail loans. This will not impact the credit history of the customers as banks will not treat it as default while reporting to the credit information companies(CIC), the RBI governor assured this for the people of commercial India.

Currency check

In a move that will have far reaching implications for the currency markets, the central bank said it will allow foreign branches of domestic banks to trade in the offshore non-deliverable forwards (NDF) markets in order to “improve efficiency of price discovery.” In reality, it may mean that the central bank will now intervene in the NDF market to control the exchange signal, even as the RBI is never expressed in its interventions. The central bank does the intervention through a clutch of nationalized banks. Now it can have its influence even in the overseas, unregulated markets that operate from Dubai, New York, Singapore and Hong Kong. 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,” the RBI governor said. The eligible instruments include all kinds corporate bonds, including from mutual funds and NBFCs. RBI said investments made under this scheme will be over and above permitted to be invested, and gave leeway in the way they are categorised. The corporate bond yields crashed by about 150 basis points after this announcement.

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Conclusion

Depositors will feel a pinch as deposit rates will also go down. Further, the RBI Governor Shaktikanta Das assured that the banking system is safe and they should not resort to panic withdrawals as happened in the recent past amid COVID-19 related volatility in the stock market. “Despite the lowering deposit rates along with tax on returns, FDs and RDs should continue to be the favoured investment instrument of risk-averse investors. Depositors should not worry about the safety of their deposits, as assured by the RBI Governor, and prefer digital transactions,” Shetty says.

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