In a new set of measures to trim the impact of coronavirus on the economy, the Reserve Bank of India (RBI) on Friday made a decision to cut the policy rate by 40 basis points from 4.4 per cent to 4 per cent.
The central bank moved up its monetary policy committee meeting, which was scheduled for early June, to make the rate cut.
The bank had cut the repo rate by 75 basis points in March as fears grew over the spread of the virus in the country of 1.3 billion people.
Das said that the monetary policy transmission has improved and added that improvement in passing lower rate to the borrowers has been noticed across various segments. Consequently, the reverse repo rate was reduced to 3.5%. "MPC voted to 5:1 majority to reduce the policy repo rate by 40 basis points from 4.4 to 4 per cent", RBI Governor Shaktikanta Das said on Friday, adding that the GDP growth in India in 2020-21 is estimated to remain in the negative territory.
The latest rate cut comes on the same day that India recorded its highest single-day rise in COVID-19 cases so far, with 6,088 new infections.
The Union Cabinet headed by Prime Minister Narendra Modi on Wednesday gave its nod for numerous schemes announced as part of "Aatma Nirbhar Bharat Abhiyan" package to prop up the economy reeling under the COVID-19 crisis.
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That was two days after the country relaxed many of its lockdown rules, including reopening restaurants. India has overtaken China in the number of coronavirus infections and now has the most cases in Asia.
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He further said "It would have been a big respite if the long-standing real estate industry demand for a one-time restructuring of loans was allowed along with the measures announced today". Red zones have heavier lockdown restrictions. Das said the combined impact of demand compression and supply disruption will depress economic activity in the first half of the current fiscal.
However, amidst the uncertainty surrounding the pandemic, agriculture provided a beacon of hope with an increase of 3.7% in food grain production, RBI governor said.
Analysts say the central bank appears deeply concerned about India's growth prospects.
"MPC also chose to continue with the accommodative stance as long as it is necessary to revive growth and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target", the central bank's monetary policy statement read. This, he said, has taken a toll on fiscal revenues.
The Reserve Bank of India (RBI) on Friday slashed interest rates, extended moratorium on loan repayments and allowed banks to lend more to corporates in an effort to support the economy which is likely to contract for the first time in over four decades.
Anuj Puri, Chairman - ANAROCK Property Consultants, said, the RBI's repo rate cut is a welcome move. "That should help to prevent an immediate deterioration in bank balance sheets", it said.