Interest Rate in India

India - Interest Rate

Reserve Bank of India slashes rates at unscheduled May meeting

In an unscheduled monetary policy meeting ending on 22 May, which replaced the meeting scheduled to end on 5 June, the Reserve Bank of India (RBI) Governor Shaktikanta Das announced fresh monetary policy loosening. This adds to the array of measures the RBI has already introduced as part of efforts to mitigate the economic consequences of the coronavirus pandemic and national lockdown.

The RBI lowered all interest rates by 40 basis points. This brought the reverse repurchase rate (the rate at which banks are paid for depositing cash at the RBI), repurchase rate (what the RBI charges banks for borrowing from it) and marginal standing facility rate (what the RBI charges banks for borrowing from it at times of tight liquidity) down to 3.35%, 4.00% and 4.25%, respectively.

In addition to lowering rates, the RBI announced less-conventional easing measuring, including extending the current loan moratorium by another three months until 31 August and easing pre- and post-shipment export credit rules to help exporting businesses. Regarding the outlook, the RBI underlined it would continue with its accommodative stance for as long as necessary to revive growth, while ensuring that inflation remains within the target.

Commenting on the monetary policy development, Prakash Sakpal of ING said: “[We] view today’s move as an affirmation that the recently announced 10% of GDP stimulus package (including all previously announced monetary easing form the RBI) isn’t enough to help the economy withstand the Covid-19 storm. The much-touted big stimulus package is more about long-term structural economic reforms rather than an immediate real boost to the economy. As such, the central bank is carrying the burden of supporting growth.”

FocusEconomics Consensus Forecast panelists are currently evaluating their interest rate forecasts. New Consensus Forecasts will be available from 26 May.