RBI cuts repo rate by 40 bps; extends loan moratorium till August

Says risk to growth gravest; GDP growth seen at negative territory in FY21

Updated - May 22, 2020 12:24 pm IST

Published - May 22, 2020 10:11 am IST - Mumbai

Shaktikanta Das

Shaktikanta Das

The Reserve Bank has further reduced the key interest rate or the repo rate on Friday, yet again calling an out of turn meeting of the monetary policy committee as the COVID-19 pandemic continue spread with economic lockdown, albeit with some relaxations, continues.

The six member of the MPC reduced the repo rate by 40 bps to 4% with five members voting for such a cut and one — Chetan Ghate — voted for a 25 bps cut.

“Domestic economic activity has been impacted severely by the 2 months lockdown. The top 6 industrialised states that account for about 60 per cent of industrial output are largely in red or orange zones,” RBI governor Shaktikanta Das said.

“High frequency indicators point to a collapse in demand beginning in March 2020 across both urban and rural segments,” he added.

The central bank refrained from giving a projection for GDP growth for the current financial year, as it stopped at saying GDP growth expected in the “negative territory” with some pick-up in growth impulses from the second half of 2020-21 onwards. “It is in the growth outlook that the MPC judged the risks to be gravest,” Mr Das said. 

Inflation target has also been held back by the central bank.

“The MPC is of the view that headline inflation may remain firm in the first half of 2020-21, but should ease in the second half, aided also by favourable base effects,” Mr. Das said.

“By Q3 and Q4 of FY20-21, it is expected to fall below target. Thus, the MPC’s forward guidance on inflation is directional rather than in terms of levels. Going forward, as and when more data are available, it should be possible to estimate the path of inflation with greater certainty,” he added.

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