RBI cuts repo rate by 40 bps; says GDP growth in current fiscal to remain negative

RBI Governor Shaktikanta Das (file image)

In a fresh bid to boost liquidity in the economy reeling under the impact of the lockdown resulting out of the Covid-19 pandemic, the Reserve Bank of India Governor Shaktikanta Das on Friday announced a cut in the repo rate by 40 basis points to 4%. The reverse repo rate was simultaneously reduced to 3.35%.

This cut in key interests rates is going to have a direct impact on loans and EMIs, making them cheaper.

The RBI also announced a three-month extension on the moratorium allowed on term loans that was initially allowed for three months because of the disruption caused by the pandemic-induced lockdown.

While stating that the simultaneous fiscal, monetary and administration measures will create conditions for a gradual revival of activity in the second half of 2020-2021, the RBI Governor said that GDP growth is estimated to remain in the negative territory, with some pick up in the second half.

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Das said that industrial production shrank by 17 per cent in March due to the nationwide lockdown. While manufacturing activity fell by 21 per cent, output of core industries contracted by 6.5%, Das added.

Das listed out three priority areas for the RBI—to keep financial markets sound and maintain liquidity, to ensure access of finances to all, to preserve financial stability.

The RBI Governor said that India’s foreign exchange reserves have increased by 9.2 billion during 2020-21 from April 1 onwards and that till May 15, foreign exchange reserves stood at $487 billion.

“RBI will remain vigilant and use all its instruments — and even fashion new ones — to keep the financial system smoothly functioning, ensure access to all and to preserve financial stability,” Das said, adding that the Central bank will continue taking measures necessary to meet Covid-19 challenges.

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