RBI Cuts Reverse Repo Rate to Push Liquidity, Says IMF Forecast for India’s Growth Highest Among G-20 Nations

RBI Cuts Reverse Repo Rate to Push Liquidity, Says IMF Forecast for India’s Growth Highest Among G-20 Nations

Reserve Bank of India Governor Shaktikanta Das on Friday said the central bank will ensure adequate liquidity in the system to ease the financial stress caused by the Covid-19 pandemic.

The central bank reduced the reverse repo rate, the rate at which banks park their fund with the central bank, by 25 basis points to 3.75 per cent. This will encourage banks to lend to the productive sectors of the economy.

With regard to other measures, Das said RBI will begin with giving an additional Rs 50,000 crore through targeted long-term repo operation (TLTRO) to be undertaken in tranches.

Besides, he announced a re-financing window of Rs 50,000 crore for financial institutions like Nabard, National Housing Bank and Sidbi.

He further said surplus liquidity in the banking system has increased substantially as result of central bank’s actions.

Stating that the RBI is monitoring situation developing out of Covid-19 outbreak, he noted that the contraction in exports in March at 34.6 per cent much more severe than global financial crisis of 2008-09.

Das said inflation is on a declining trajectory and could fall below the central bank’s 4 per cent target by the second half of this fiscal amid challenges posed by Covid-19 pandemic.

He said the consumer price index based retail inflation has fallen by 170 bps from its January 2020 peak. “In the period ahead, inflation could even recede further, barring of course any supply side disruptions and may even settle well below the target of 4 per cent by the second half of 2020-21,” Reserve Bank Governor Das said.

Das added that such an outlook would make policy space available to address the intensification of risks to growth and financial stability brought about by Covid-19. The retail inflation for March fell to a four-month low of 5.91 per cent on cheaper food articles.

The IMF has projected sizable V-shaped recoveries for 2021, close to 9 percentage points for global GDP. It expects India to record a sharp turnaround and resume its pre-Covid pre-slowdown trajectory by growing at 7.4 per cent in 2021-22, Das said.

“India is among the handful of countries which is projected to somehow cling on to a positive growth rate at 1.9 per cent. In fact, this is highest GDP growth rate among the G-20 economies as estimated by the IMF.”

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