The Reserve Bank of India (RBI) cut interest rates and announced steps to boost liquidity in a stimulus worth 3.2 percent of gross domestic product to counter the economic effects of the coronavirus outbreak.
The benchmark repurchase rate was slashed by 75 basis points to 4.4 percent from 5.15 percent, bank Governor Shaktikanta Das said yesterday after an emergency meeting of the rate-setting panel. The bank also cut the cash reserve ratio, the amount of deposits lenders must set aside as reserves, by 100 basis points to 3 percent to boost liquidity.
The biggest rate cut since 2009 was accompanied by measures to boost banking system liquidity that adds up to 3.74 trillion rupees (US$50 billion), support the financial markets and smoothen volatility.
Photo: Reuters
Targeted long term repo operations of up to 1 trillion rupees and a three-month moratorium on repayment of term loans for all banks and shadow lenders starting on March 1 were part of the steps.
“A war effort has to be mounted and is being mounted to combat the virus involving conventional and unconventional measures in a continuously battle-ready mode,” Das said, adding that the rate cut is aimed at supporting economic growth for as long as is necessary and to mitigate the impact of COVID-19.
“It is worthwhile to remember tough times don’t last, only tough people and tough institutions do,” he said.
The decisions are by far the most sweeping steps by the central bank to support the economy, and came a day after relief measures worth 1.7 trillion rupees announced by Indian Minister of Finance Nirmala Sitharaman.
The bank brought forward its monetary policy committee meeting that was scheduled to start on Tuesday and in the process joined in delivering surprise actions such as those by the US Federal Reserve and other central banks to stem the economic fallout of the pandemic.
“This is RBI’s whatever it takes moment,” Anand Rathi Shares & Stock Brokers chief economist Sujan Hajra said. “This would not necessarily promote growth but avert a collapse, so a big positive.”
The yields on benchmark 10-year bonds fell as low 5.98 percent, the lowest since 2009, after the RBI’s steps. The rupee advanced 1 percent against the US dollar to 74.44, while the nation’s stocks fell after rising as much as 3.4 percent initially with the S&P BSE SENSEX down 0.4 percent and the NSE NIFTY down 0.9 percent.
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