In its Monetary Policy Committee (MPC) meeting held on Friday, 27th March, RBI agreed for a huge reduction in repo rate in a bid to mitigate economic risks induced to the Covid-19 pandemic.

As reported by India Today: ” The RBI’s MPC has voted in favor of an interest rate cut to the tune of 75 basis points, which brings the repo rate down to 4.4 percent from 5.15 percent. The reverse repo rate has also been reduced by 90 basis points to 4 percent in a bid to maintain financial stability and revive growth. “

In addition to this, RBI also announced that banks could allow a three-month moratorium for payment of EMIs on all term loans that were outstanding on March 1. So the customer can now pay the outstanding EMI after three months. Thus, the payment of EMI is on hold.

However, in the case of the moratorium, the final decision remains in the hand of the banks. Also, the industry experts reassured that the non-payment of EMI will not impact the credit score.

RBI made the above announcements with an intention to help the people grappling with economic uncertainty. Many people have been affected by the 3-week lockdown to curb the spread of novel coronavirus.

Financial experts analyzed what could be the impact of slash in repo rate. According to their analysis, interest rates for term loans are expected to lower. Home loans are also expected to get cheaper with the reduction of repo rate.

Even the rates for personal loans and consumer good loans are expected to drop. RBI has made this move so that the low rates can accelerate demand and maintain the consumption cycle.

The RBI has also brought down the Cash Reserve Ratio (CRR) of banks from 4 percent to 3 percent. This means the banks will have more money to lend now.

Apart from the above reductions in key rates, RBI also announced various liquidity measures related to MLCR and TLTRO to ease the increasing pressure.

For the borrowers two things need to be noted:

EMIs linked to repo linked lending rate (RLLR) will witness faster changes. In comparison, EMIs linked to MCLR will have to wait for their reset period. In their case, either the EMIs will decrease or the loan tenure will be reduced.

The RBI governor has vowed that the RBI will provide all the necessary help for the economy to get through this period of crisis.

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