Central bank of India has cut interest rates due to an emergency move on Friday to fight the economic fallout from the coronavirus pandemic. This has come after the federal government imposed a lockdown in the country to curb the spread of infections across the region.
Prime Minister Narendra Modi has urged India’s 1.3 billion people (with folded hands) to stay indoors for three weeks in the largest lockdown anywhere, closing down Asia’s third-largest economy which has led to millions of people who are economically vulnerable without work.
The Reserve Bank of India downed the benchmark repo rate by 75 basis points to 4.40% following a video conference meeting of its monetary policy committee (MPC), which was brought forward to respond to the crisis.
“Clearly a war effort has to be mounted and is being mounted to combat the virus, involving both conventional and unconventional measures in a continuously battle-ready mode,” Governor Shaktikanta Das said.
The move has surfaced a day after the federal government declared a $22.6 billion stimulus plan to relieve the pain of the poor via direct cash transfers along with food security measures.
Even before the pandemic hit, the economy of India was struggling and the growth has possibly weakened to at least an eight-year low this quarter and will possibly get weak even more sharply in the next six months, as per a Reuters poll of economists.
India has recorded 723 coronavirus cases, and 17 people have died in total, according to the Indian health ministry; however, there are concerns that toll could easily surpass other strongly hit nations such as the United States, China, and Italy.
Modi along with international experts have stated that India is facing a tidal wave of infections if it doesn’t take rigid steps. However, efforts to fight the spread of the virus are paralyzed by limited medical facilities and deficient supplies of testing kits, as per the experts.
‘Pulling Out the Bazooka’
India is wishing that if it can keep its people under lockdown until mid-April it would be able to stem transmission of the virus within communities. Officials explain that infections have been concentrated so far among people either coming from overseas or in contact with them.
Other countries in South Asia, home to a fifth of the world’s population also signaled symbols of agony, dragged into an economic crisis by the fallout from the pandemic.
Pakistan, where the number of people infected with the coronavirus has neared 1,200, has asked the International Monetary Fund (IMF) for a fresh $1.4 billion loan.
Sri Lanka has asked for a moratorium on its international debt repayments.
For India, aside desperation resulting from the lost jobs, the rapidly decelerating economy risked exacerbating an already critical problem of bad debts.
“The RBI has pulled out its bazooka,” said Prithviraj Srinivas, chief economist at Axis Capital in Mumbai.
“It has pulled down the cost of capital through deep policy rate cuts, it has increased the quantity of money through cash reserve ratio cuts and asset purchases, and more importantly reduced financial stress in the economy through its 3-month moratorium on all term loans as well as working capital.”
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