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Reserve Bank cuts repo rate by 75 bps to mitigate impact of COVID-19
Mar-27-2020
With an aim to counter the economic slowdown caused by the COVID-19 pandemic, the Reserve Bank of India (RBI) has reduced the policy repo rate under the liquidity adjustment facility (LAF) by 75 basis points (bps) to 4.40 per cent from 5.15 per cent with immediate effect. Accordingly, the marginal standing facility (MSF) rate and the Bank Rate stand reduced to 4.65 per cent from 5.40 per cent. Besides, the reverse repo rate under the LAF has been reduced by 90 basis points to 4.0 per cent.

The monetary policy committee (MPC) of RBI also decided to continue with the accommodative stance as long as it is necessary to revive growth and mitigate the impact of coronavirus (COVID-19) on the economy, while ensuring that inflation remains within the target. These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.

As per the RBI, the growth projection of 4.7 per cent for the fourth quarter of 2019-20 and 5 per cent for the whole fiscal is now at risk from the pandemic’s impact on the economy. Turning to growth, apart from the continuing resilience of agriculture and allied activities, most other sectors of the economy will be adversely impacted by the pandemic, depending upon its intensity, spread and duration. It also said that if COVID-19 is prolonged and supply chain disruptions get accentuated, the global slowdown could deepen, with adverse implications for India.

Besides, the RBI said that the slump in international crude prices could, however, provide some relief in the form of terms of trade gains. It added that downside risks to growth arise from the spread of COVID-19 and prolonged lockdowns and upside growth impulses are expected to emanate from monetary, fiscal and other policy measures and the early containment of COVID-19. The MPC is of the view that macroeconomic risks, both on the demand and supply sides, brought on by the pandemic could be severe. It said the need of the hour is to do whatever is necessary to shield the domestic economy from the pandemic.

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