Amidst the coronavirus outbreak, there has been a lot of pressure on reviving the economy, however, the virus obligates one to maintain social distancing and reduce the amount of travel outside the home and it is here to stay for a while. Thus, the wait in the normalise of matters makes the government take more actions to support the citizens.

Now, the Indian banking system is controlled by the apex body called Reserve Bank of India (RBI) and it manipulates the amount of money with the banks which leads to more or fewer loans, cost of things and ultimately inflation or deflation.

The RBI has various monetary policies essential for the above mentioned, one of them is the cutting or increasing repo rate. On 22nd May 2020, Friday, the RBI announced a further reduction in the key interest rate or the repo rate by 40 bps post the unprecedented Monetary Policy Committee (MPC) meeting as the COVID-19 pandemic induced lockdown continues, albeit with calibrated relaxations.

The decision alongside various other decisions affecting import and export loans, the action plan of UNCTAD, role of SIDBI and various other economy-related points have been mentioned in the Governer's statement. One of these is the extension of the loan repayment moratorium for another three months till August 31 by the central bank.

Check Out the Governer's Statement

A benefit for the borrowers, the result of six-member MPC announcement, the reduced the repo rate to 4% with five members of the panel voting for the steep cut while one member, Chetan Ghate, voted for a 25 bps cut, will be significantly impacting those whose loans are linked to the repo rate.

From the Governer's Statement, "After extensive discussions, the MPC voted unanimously for a reduction in the policy repo rate and for maintaining the accommodative stance of monetary policy as long as necessary to revive growth, mitigate the impact of COVID-19, while ensuring that inflation remains within the target. On the quantum of reduction, the MPC voted with a 5-1 majority to reduce the policy rate by 40 basis points from 4.4 per cent to 4.0 per cent. Consequently, the Marginal Standing Facility (MSF) rate and the Bank rate stand reduced to 4.25% from 4.65%. The reverse repo rate stands reduced to 3.35% from 3.75%."

"It is when the horizon is the darkest and human reason is beaten down to the ground that faith shines brightest and comes to our rescue," starting with this quote, the Governor's statement is focused on the present and future situation of the country in recovery from lockdown and global economy's situation as well.


Repo Rate, also known as a self-explanatory term repurchase rate, is a key monetary policy rate of interest at which the central bank or the Reserve Bank of India (RBI) lends short term money to banks. What a cut down in this rate will do is start the process of more liquidity in the economy. Due to the more amount of money with the bank as it has to pay less interest to RBI, they will have more scope for offering loans at less interest rate to the borrowers and there will be more money.

Repo Rate in India, a primary tool in the RBI's monetary and credit policy helps in controlling credit availability, inflation, and economic growth. Reverse Repo Rate and Marginal Standing Facility Rate, are the other monetary rates are often directly linked with the Repo Rate of RBI.

Again, as the name suggests, Reverse Repo Rate is, an exact opposite of the Repo Rate wherein the banks park money with the RBI for the short term at the prevailing Reverse Repo Rate.


Repo Rate is the most significant rate for the common man. What does it influence? Well, the answer is a wide range of things from interest rates on loans to returns on deposits is influenced by this crucial rate set by the RBI, which is why interest rates on home loans, car loans and other kinds of borrowings go up and down based on the direction of Repo Rate change. Similarly, banks adjust savings account, fixed deposit returns based on this benchmark.

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