The coronavirus pandemic has crippled the global economy and "we must have faith in India's resilience and come out of all odds," Reserve Bank of India governor said at the start of his live streamed address as the central bank announced a host of measures to meet Covid-related challenges.
Towards the end of his briefing, he said that "together we will triumph", expressing optimism that the measures taken by the government and the central bank will help in some recovery in economic growth during the second half of this year.
The RBI today cut interest rates or repo rate in an unscheduled announcement, ramping up support for an economy it expects will contract for the first time in more than four decades. The monetary policy committee met ahead of its scheduled meeting in early June.
The benchmark repurchase rate was lowered by 40 basis points to 4%, a move that is expected to bring down the lending and deposit rates. The reverse repurchase rate was reduced to 3.35% from 3.75%.
“After extensive discussions, the MPC voted unanimously for a reduction in policy repo rate and for maintaining the accommodative stance of the monetary policy as long as necessary to revive growth and to mitigate the impact of Covid-19 while ensuring that inflation remains within the target," Das said.
The economy is expected to contract in the fiscal year through March 2021, Das said, as the impact of the coronavirus and measures taken to contain the pandemic severely affect domestic activity. He expressed optimism that GDP growth could recover in the second half of this fiscal.
The economy is heading for a 45% contraction in GDP in the quarter through June, according to Goldman Sachs Group Inc., and facing a full-year decline as consumption -- the backbone of the economy -- collapsed due to lockdown measures.
"Domestic economic activity has been impacted severely by the lockdown which has extended over the past two months. High frequency indicators point to a collapse in demand beginning March 2020 across both urban and rural segments. Electricity consumption has plunged, while both investment activity and private consumption suffered precipitous declines," the monetary policy committee said in a statement.
"Even though the lockdown may be lifted by end-May with some restrictions, economic activity even in Q2 may remain subdued due to social distancing measures and the temporary shortage of labour. Recovery in economic activity is expected to begin in Q3 and gain momentum in Q4 as supply lines are gradually restored to normalcy and demand gradually revives. For the year as a whole, there is still heightened uncertainty about the duration of the pandemic and how long social distancing measures are likely to remain in place and consequently, downside risks to domestic growth remain significant. On the other hand, upside impulses could be unleashed if the pandemic is contained, and social distancing measures are phased out faster."