May 22: RBI Governor Shri Shaktikanta Das today announced a reduction in major policy rates, in order to revive growth and mitigate the impact of COVID-19 while ensuring that inflation remains within the target. The repo rate has been reduced by 40 basis points from 4.4% to 4.0%. The Marginal Standing Facility rate and the Bank rate have been reduced from 4.65% to 4.25%. The reverse repo rate has been reduced from 3.75% to 3.35%.
“Judging that the risks to growth are acute, while the risks to inflation are likely to be short-lived, the Monetary Policy Committee believes that it is essential now to instil confidence and ease financial conditions further. This will facilitate the flow of funds at affordable rates and rekindle investment impulses. It is in this context that the MPC voted to reduce the policy repo rate by 40 basis points from 4.4 per cent to 4.0 per cent” the Governor said.
Shri Das also announced a set of regulatory and developmental measures which he said complement the reduction in the policy rate and also strengthen each other.
He reiterated that the goals of the measures being announced are:
- to keep the financial system and financial markets sound, liquid and smoothly functioning
- to ensure access to finance to all, especially those that tend to get excluded by financial markets
- to preserve financial stability
Given all these uncertainties, GDP growth in 2020-21 is estimated to remain in negative territory, with some pick-up in growth impulses from H2: 2020-21 onwards. Much will depend on how quickly the COVID curve flattens and begins to moderate.
