REPO rate reduced to 4 Percent cut by 40 basis points – RBI

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India interest rates may 2020

REPO rate reduced to 4 Percent cut by 40 basis points – RBI

The Monetary Policy Committee held for the three days from 20th May 2020 to 22nd May 2020. In the end of 3rd day, all the committee members had cast their votes in favor of interest rate cut. In a statement issued by the RBI, it was said that the REPO rate for banks would be reduced to 4 Percent from the earlier 4.40 Percent, cut by 40 basis points.

The announced REPO rate cut on last morning was considered to be as an ‘Emergency Move’ by the Central Bank. Similarly, the Reverse REPO rate has been reduced from 3.75 Percent to 3.35 Percent. The Bank rate was also said to be 4.25 Percent from 4.65 Percent.

According to the RBI data, Since March 2020 the economy of the country has been badly affected and most of the businesses have been harmed by the Covid-19 Lock down. It has been said that it is currently unable to gather proper data on Inflation rates and that there will be unexpected changes in the Inflation rates in the upcoming months.

However the Central Bank’s (RBI) medium term target for inflation is expected to be around 4 Percent, which could be 2 Percent plus or minus of the Target. During the Q1CY20 (Jan – Mar) quarter, the economic growth of the developed countries went Negative.

From the Emerging Economy Nations, China’s growth has fallen sharply in the January – March Quarter. The Reserve bank of India said that the Global Investors had diversified their investments to the Safe Haven and especially in Gold.

As per the RBI expectation, the First two quarter of this year is likely to be largely unchanged. The RBI has said that the Country’s economy growth – GDP will be negative for the Financial year 2020-21.

The Reduced REPO and Bank rates will help to encourage the borrowers and also viewed to strengthen the Financial Markets. This could be advantageous to the Companies, that they can pay the loan at low interest rates. At the same time, this does not benefit to the revenue of Banks.

Again, there is a 3 months Loan Moratorium announced for the Bank Customers. This applies for the period between June – August 2020. However it will not make any benefit to the customers directly. Even it is said to be a Moratorium, the customers have to pay the entire amount with more interest payment after the completion of Loan Moratorium period. So, it would hurt their Family expenses and Savings.

If there is a discount on Interest payments and Loan restructuring in Banks, it would support the Customers and also the Banks, as the Current scenario is highly distressed due to the Lock down and Economic Crisis.

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