Changes in RBI Policy: Reduced repo rate and reverse repo rate

Updated on 10 June 2020

By Bankers Setu

6 min read 2 views

Updated on 10 June 2020

Share this article

Copy Link Link Copied

RBI Governor’s Declaration: The Repo rate has been reduced 40 basis points from 4.4% to 4% and Reverse repo rate has been reduced by 3.35%.

The Shaktikanta Das, the reserve bank governor of India has addressed on May 22, 2020 and talked about the impact of CORONAVIRUS on the global and Indian economy. In a major announcement, the RBI Governor Shri Shaktikanta Das announced that the Repo rate has been reduced 40 basis points from 4.4% to 4% and Reverse repo rate has been reduced by 3.35%.

The RBI Governor disclosed that its Monetary Policy committee had met over the last 3 days in an emergency meeting to review current global and domestic outlook and the depth impact of COVID- 19. The six members of the Monetary Policy committee voted in the ratio of 5:1 to reduce repo rate by 40 basis points in interest rate. The reverse repo rate also reduces to maintain the indulge posture. It was decided that the deduction in policy rate will be provided as long as necessary to reduce growth.

Global Economy Condition

In the current situation, the world is heading toward recession. There is a high decline recorded in the global services. The growth rate of emerging market economies recorded very low due covid-19 impact.

The value of global trade reduced by 3% in Q1 and according to the RBI governor it can be further reduced by 13-32% in this year.

At this time, the global policy response has been unusual.

Domestic Economy Condition

The Indian Economy has been severely Impacted by the COVID-19 crisis. The top 6 Industrialized states, which produced 60% production of India, come in red or orange zones.

The loss of demand and production has taken its impact on fiscal revenues. The industrial demand has reduced continuously. The urban and rural demand reduced continuously since March 2020. The biggest blare was fall in private consumption. The consumer permanent production fell by 33% in March 2020.

There was 25% reduction in cement production. The industrial production also fell by 17%. The manufacturing activity reduced by 21%. The output of core industries also fell by 6.5%.

Light of Hope

Agriculture and federal Activities: There was a marked increase in production in agriculture and in federal activities which provide a light of hope. Food grain production increased by 3.7% which is a new record. There was an increase in Kharif sowing.

India’s foreign exchange reserves also increased by 9.2 billion during 2020-21 from April 01, 2020 onward. In present, India’s foreign exchange reserve stand at USD 487 billion.

Banking