AGENCIES, New Delhi: Reserve Bank of India (RBI) Governor Shaktikanta Das slashed the key lending rate by 75 basis points (0.75 percentage point) in an emergency move on Friday to counter the economic fallout from the rapid spread of the deadly coronavirus pandemic.
The move came as the country entered the third day of nationwide lockdown to curb the spread of the virus, following an unscheduled meeting of its Monetary Policy Committee, which was originally scheduled to conduct a bi-monthly review early next month. Four out of the six members of the Monetary Policy Committee voted in favour of the move.
“The economic outlook globally is uncertain and obviously negative… Financial stability is the topmost priority of the RBI in this crisis,” Shaktikanta Das said.
The magnitude of the cut in repo rate — the key interest rate at which the RBI lends short-term funds to commercial banks — was the highest under Shaktikanta Das so far. The largest cut he had delivered was of 35 basis points in August last year.
The RBI Governor also announced a cut of 100 basis points in the cash reserve ratio for a period of one year, a step he said will ensure sufficient liquidity in the system. CRR or cash reserve ratio is the amount of cash commercial banks have to mandatorily park with the Reserve Bank of India.
The RBI also permitted all commercial banks and lending institutions to allow a three-month moratorium on all loans in view of the ongoing lockdown to protect the 130 crore people in the country from the deadly virus. “Banks should do all they can to keep credit flowing,” Das added.
The surprise moves came as India entered the third day of a 21-day countrywide lockdown to curb the rapid spread of the coronavirus pandemic. The RBI has already infused Rs 2.7 lakh crore into the country’s financial system since the February policy meeting, the Governor said. The central bank’s overall liquidity injection stands at 3.2 per cent of GDP, he said.
On Thursday, Finance Minister Nirmala Sitharaman had announced a Rs 1.7 lakh-crore fiscal package to support the poor through direct cash transfers and food security measures, without giving details on how the programme will be funded.
India is staring at the worst annual rate of gross domestic product (GDP) expansion recorded since the 2008-09 global financial crisis, and many economists have anticipated a further blow to the economy thanks to the COVID-19 outbreak.
