In a tweet, the finance Minister also welcomed RBI governor Shaktikanta Das' statement that the macro economic fundamentals of the Indian economy are sound, and in fact stronger than what they were in the aftermath of the global financial crisis of 2008-09.
We believe the RBI is running the risk of falling behind in terms of proactive policy intervention, especially with the magnitude of shocks now hitting the Indian economy and the financial system. However, the latest measure, which has come as an emergency measure and not within the RBI's bi-monthly policy-review framework, is three times the size of the cut generally applied.
"This is a direct and targeted approach to a fluid situation in the face of an uncertain inflation and growth trajectory".
It cut the repo rate by 75 basis points (bps) to 4.40%, exceeding market expectations for a 50 bps cut.
That's the lowest benchmark rate the Reserve Bank of India has charged on lending to commercial banks, its so-called "repo rate", since March 2010.
Repo rate from 4.4% from 5.15%. This widening has happened for the first time since April 2017. "RBI will take continuous measures to ensure liquidity in the system", Shaktikanta Das stated in his address.
Finance minister Nirmala Sitharaman asked banks for "quick transmission" of slashed interest rate as the RBI cut the key lending rate sharply by 75 basis points to boost liquidity in financial system to deal with the COVID-19 pandemic. "Additionally, this move will encourage banks to lend more and also enable industries to borrow", observed Anuj Puri, chairman, ANAROCK Property Consultants.
The governor also informed that Cash Reserve Ratio (CRR) of all banks reduced by 100 basis point to 3% from March 28, 2020, for a period of 1 year.
He further said that the growth projection of 4.7 per cent for the fourth quarter of 2019-20 and 5 per cent for the whole fiscal was at risk..
Financial stocks gave up most of the day's gains.
Can borrowers breathe a sigh of relief?
"The moratorium on term loans, including home loans, by the RBI would provide relief for the real estate sector to focus more on the operational requirement and recalibrate the business strategies", he said.
However, the devil lies in the details.
The Reserve Bank of India said that all commercial banks and NBFC are permitted to allow a three month moratorium on payment of instalments of all term loans.
The RBI brought forward its scheduled monetary policy decision by several days to today (March 27). The weighted average term deposit rate at 6.52% in January 2020 is lower than the interest rates on different small saving schemes of the government.
The RBI said due to the social distancing of staff and consequent strains on reporting requirements, it has chose to reduce the requirement of minimum daily CRR balance maintenance from 90 per cent to 80 per cent effective from the first day of the reporting fortnight beginning March 28, 2020.
"These measures could elevate sentiments temporarily but the main impact will be visible post the lifting of lockdown". The RBI has now allowed banks to participate in the offshore Indian Rupee (INR) derivative market with effect from June 1.