COVID19 Fallout: RBI Cuts Repo Rate by 40 bps, Lending Rates May Fall Further

Advancing monetary policy committee meeting, the Reserve Bank of India slashed repo rate by 40 bps to 4% on Thursday. The reverse repo rate is set at 3.35%.

“Over the last three days, the MPC reviewed the implications of COVID-19 on economy, it has been decided to reduce in repo rate to revive growth. This will be done by 40 basis points, from 4.4 % to 4%,” said RBI chief.

The growth outlook is grim in face of low consumption said the RBI governor. The RBI governor also said that we are facing biggest blow to private consumption due to pandemic spread and lockdown. The GDP growth is estimated to stay negative added governor. The governor said Inflation seems not to be such a big worry but the low growth is a worry.

Today’s reduction in policy repo rate may bring down lending rates and deposit rates further. On 27 March, the central bank had cut the repo rate by 75 bps and reverse repo rate by 90 bps to stimulate growth in face of financial disruptions caused by Corona Virus spread. In April again, the RBI reduced reverse repo rate to 3.75% so as to discourage banks from parking idle funds with the central bank. The move was taken to revive lending and spur growth in economy.