Banks have been given the go-ahead to ease lending norms as India takes more steps to prevent a full-scale slowdown of the economy. Image Credit: Bloomberg

Mumbai: The Reserve Bank of India cut interest rates in an unscheduled move, joining central banks around the world in boosting stimulus to counter the economic impact of the coronavirus outbreak. The benchmark repurchase rate was lowered by 75 basis points to 4.40 per cent from 5.15 per cent

India’s rupee had been inching higher since the start of trading Friday, in anticipation of a rate cut. The country’s stock markets too are in positive territory = The Sensex is up 451 points as of 10.30am India time.

The rate cut is aimed at supporting economic growth for as long as is necessary and to mitigate the impact of Covid-19, Shaktikanta Das, the Governor said.

“Tough times never last, tough people do,” he said.

Tough times never last, tough people do

- Shaktikanta Das

This comes after an emergency meeting of the rate-setting panel. The RBI had been on hold since December after five rate cuts in 2019.

The decision was taken in a meeting of the Monetary Policy Committee that was brought forward from the scheduled start of March 31, and follows surprise actions by the Federal Reserve and other central banks to stem the economic fallout of the pandemic.

Governor Shaktikanta Das had earlier signaled his willingness to cut interest rates as risks from the virus outbreak worsens. While inflation remains above the upper end of the RBI’s 2-6 per cent target band, falling oil prices will help to curb price pressures.

The government Thursday announced a 1.7 trillion rupee ($22.6 billion) spending plan that includes cash transfers to the poor and steps to ensure their food security. Finance Minister Nirmala Sitharaman said more measures may follow to help the economy weather the shutdown.

A virtual standstill

The shutdown will halt all non-essential consumption and push the economy toward contraction in the April-June quarter, Prakash Sakpal, an economist at ING Groep NV in Singapore, wrote in a note.

India’s economy, which expanded 4.7 per cent in the quarter ended December, hasn’t seen a contraction in at least two decades, based on official data adjusted for different base years.

The RBI has separately announced two rounds of forex swaps to support the rupee as it fell to a record low. Officials have assured markets that the RBI will provide liquidity - both rupee and foreign exchange - to ensure financial markets function smoothly.