(Bloomberg) -- The Reserve Bank of India cut interest rates in an unscheduled move, joining central banks around the world in boosting stimulus to counter the economic impact of the coronavirus outbreak.
The benchmark repurchase rate was lowered by 75 basis points to 4.40% from 5.15%, Governor Shaktikanta Das said Friday after an emergency meeting of the rate-setting panel. The RBI had been on hold since December after five rate cuts in 2019.
The rate cut is aimed at supporting economic growth for as long as is necessary and to mitigate the impact of Covid-19, Das said. “Tough times never last, tough people do,“ he said.
The decision was taken in a meeting of the Monetary Policy Committee that was brought forward from the scheduled start of March 31, and follows surprise actions by the Federal Reserve and other central banks to stem the economic fallout of the pandemic. Prime Minister Narendra Modi’s government imposed a three-week long nationwide lockdown for its 1.3 billion people, the most far-reaching measure undertaken by any government to check the virus’s spread.
The government Thursday announced a 1.7 trillion rupee ($22.6 billion) spending plan that includes cash transfers to the poor and steps to ensure their food security. Finance Minister Nirmala Sitharaman said more measures may follow to help the economy weather the shutdown.
The shutdown will halt all non-essential consumption and push the economy toward contraction in the April-June quarter, Prakash Sakpal, an economist at ING Groep (AS:INGA) NV in Singapore, wrote in a note. India’s economy, which expanded 4.7% in the quarter ended December, hasn’t seen a contraction in at least two decades, based on official data adjusted for different base years.
Governor Shaktikanta Das had earlier signaled his willingness to cut interest rates as risks from the virus outbreak worsens. While inflation remains above the upper end of the RBI’s 2%-6% target band, falling oil prices will help to curb price pressures.
The RBI has separately announced two rounds of forex swaps to support the rupee as it fell to a record low. Officials have assured markets that the RBI will provide liquidity-- both rupee and foreign exchange -- to ensure financial markets function smoothly.
(Updates with governor’s comments in third paragraph)
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