RBI cuts repo rate and extends moratorium period

The Reserve Bank of India had cut the repo rates by 75 basis points in the month of March, 2020. They also announced multiple measures to ensure liquidity during the COVID-19 outbreak. Today, the RBI Governor Shaktikanta Das called for a press conference to make an official announcement. The repo rate has been cut by 0.4 % which now remains at 4%. The reverse repo rate has been shortened to 3.35%.  Since cost of funds has being coming from banks, borrowers can experience a cut in the amount of EMI required by them to pay. This will result in a fall in both Home and Car Loans. If any loan is linked to Marginal Cost of Funds based Lending Rate, borrowers are to benefit. The fall in MCLR will let them pay lower EMIs on loans, when their reset-period comes up

From October 1, 2019 loans, including home and auto loans, offered by banks, are linked to an external benchmark, which for most banks is the RBI repo rate. The moratorium period has also been extended by 3 months till August 31, 2020. The RBI also announced a three month moratorium on all term loans outstanding as on March 1, 2020. This tactic is said to ease the liquidity loss on borrowers.

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