India cuts benchmark rate to lowest level on record

India’s central bank has lowered its benchmark interest rate to its lowest level ever as policymakers battle the potentially ruinous economic and humanitarian effects of a 21-day shutdown due to the coronavirus outbreak .

“A war effort must be mounted and is underway to fight the virus,” said Shaktikanta Das, governor of the Reserve Bank of India. “The time has come for the Reserve Bank to release a range of instruments from its arsenal.”

The RBI’s monetary policy committee lowered the country’s repo rate by 75 basis points to 4.4%, the lowest since its introduction about two decades ago.

The central bank also said it would inject Rs 3.7 billion ($ 49 billion) in liquidity into the financial system and allow banks and other lenders to offer customers a three-month moratorium on loan repayments. .

The unexpected cut in rates came after Prime Minister Narendra Modi announced a three-week curfew on Tuesday forcing citizens to stay at home and shut down all but essential services in the country’s 1.4 billion people. As of Friday, the number of confirmed coronavirus infections rose to 691.

The move was deemed necessary to stem the epidemic, but has raised concerns among the hundreds of millions of Indians without formal employment, many of whom are at risk of hunger if they lose their income. India’s economy was already experiencing one of its most painful downturns years before the epidemic began.

“The RBI has stepped up its response,” said Shilan Shah, senior economist in India at Capital Economics. But he warned that more tax measures were “necessary to prevent the dramatic economic slowdown from degenerating into something even smarter.”

On Thursday, the finance ministry separately announced a $ 22 billion relief package to help poor Indians, including free distribution of grains and pulses and direct cash transfers.

On Friday, Moody’s investor service lowered its forecast for growth in India’s gross domestic product in 2020 to 2.5%, from more than 5%.

The rating agency cited the risk that India and other emerging markets “generally lack social safety nets, a weak ability to provide adequate support to businesses and households, and inherent weaknesses.” . . will amplify the effects of the shock induced by the coronavirus ”.

According to Capital Economics, GDP growth is expected to slow to 1% this year.

The reaction of the financial markets to the RBI announcements has been mitigated. Yields on 10-year treasury bills first dropped before offsetting their losses. The Bombay Stock Exchange’s Sensex benchmark, which is trading at its lowest level since 2017, closed down 0.4% on Friday.

Editor’s note

The Financial Times makes the coverage of major coronaviruses free to read to help everyone stay informed. Find the latest news here.

n / A

Leave a Comment