On Friday, the Reserve Bank of India (RBI) abruptly lowered its repo rate for the second time this year rate by 40 basis points. It came after an off-cycle policy review to combat the economic effects of a national ongoing lockdown. It aims to curb the spread of coronavirus disease.
RBI Governor Shaktikanta Das said the lending rate for the short term is now down 4 percent from 4.4 percent earlier. The reverse repo rate was also high to 3.35 percent by 40 basis points.
In a video conference, Shaktikanta Das said that the Monetary Policy Committee ( MPC) of the central bank had voted to retain its “accommodative” posture, and that five out of six members supported a rate cut.
Das said leaders of the MPC met in an off-cycle meeting for three days, which was originally planned for June 3-June 5.
It had last cut the benchmark interest rate by a huge 75 basis points on March 27. And then, it declared a three-month moratorium on banks offering relief to lenders whose income was affected because of the lockout.
“We need to have confidence in the strength of India, and come out of all odds,” said the RBI leader.
RBI was Lowered Its Primary Deposit
Only in April, RBI had abruptly lowered its primary deposit rate or reverse repo rate to 3.75 percent. It aims to deter banks from storing idle funds with it. And then, it stimulates lending. On 27 March, the pace was already lowered by 90 bps.
RBI has authorized a three-month moratorium on payment of all term loans due from March 1 to May 31 , 2020.
Das said Friday that it will now be extended for another three months until August 31.
The governor of the central bank said the economy is seeing a decline in demand on Friday. It was indicated by data on energy, petroleum products and private consumption. Then, it added that government revenues have also been seriously impacted.