In a bid to counter the economic slowdown caused by the COVID-19 pandemic, RBI has today reduced repo rate by 75 basis points to 4.4%. Further, the central bank has also reduced the reverse repo rate by 90 basis points to 4%.
Repo rate is the rate at which RBI lends money to commercial banks. The reverse repo rate is the rate at which RBI borrows funds from commercial banks. Reverse repo is the rate at which commercial banks in India park their excess money with RBI for the short term.
Moreover, the central bank also slashed the cash reserve ratio (CRR) by 100 bps to 3%. CRR is the minimum that the commercial banks have to hold as reserves with the central bank.
In an address to the media, RBI governor Shaktikanta Das said, "Need of the hour is to shield the economy from the pandemic."
Mahendra Jajoo, Head-Fixed Income, Mirae Asset said that RBI’s measures are in the right direction to improve the liquidity in the system.
Arvind Chari, Head Fixed Income, Quantum MF said that investors parking money in the short-term debt papers are likely to benefit the most from this rate cut
