InvestorQ : Why has the RBI again cut rates in the midst of this lockdown?
shrinidhi Rajan made post

Why has the RBI again cut rates in the midst of this lockdown?

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Riya Dwivedi answered.
12 months ago
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Actually, the urgency and the timing of the rate cuts on 22 May did come as a surprise. After cutting repo rates by 75 bps in March, the MPC has cut repo rates by another 40 bps. This takes the total rate cut to 115 bps since the pandemic. The latest rate cut takes the repo rates to an all-time low level of 4%. In addition, MPC has also cut reverse repo rates to 3.35% to make it unattractive for banks to park funds with RBI. Since Sep-18, repo rates have been cut by 250 bps while reverse repo rates have been cut by 290 basis points. However, transmission continues to be a challenge. Impact on credit may be limited because banks are unwilling to lend to commercial or retail borrowers. They are already stressed due to the 6-month moratorium on EMI announced by the RBI. Even at very low yields, banks prefer to park the money with the central bank rather than risk NPAs. That could make this rate cut largely ineffective.

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