The Central Bank also cut cash reserve ratio by 100 basis points to 3 percent and Reverse repo rate has been cut by 90 basis points to 4 percent to disincentivize banks from hoarding money.
Stating that this comes amid extra-ordinary circumstances and uncertain outlook, India's Central Bank - Reserve Bank of India Governor Shaktikanta Das said that this has been done to make it unattractive for banks to passively deposit funds with the Central Bank and instead lend it to the productive sectors.
On Thursday, India's finance minister released a package of 22.86 billion U.S. dollars to combat the impact of the three-week coronavirus lockdown and Friday's announcement by RBI governor including the rate cut and several other measures will inject 50.29 billion U.S. dollars into the system.
Global economic activity has come to a near standstill and the outlook is heavily contingent on the intensity and spread of the pandemic and most sectors in India will be adversely impacted, the governor said, admitting that aggregate demand may weaken due to COVID-19.
In order to mitigate debt servicing burden to prevent transmission of financial stress to real economy and provide relief to borrowers, the governor also announced a 3-month moratorium on repayment of all term loans along with deferment of three months in payment of interest on working capital.
Following the announcement, Indian rupee strengthened by 77 paise to 74.39 against the U.S. dollar while the benchmark indices on the Bombay and National Stock Exchange were up 0.3 percent over the previous close erasing its trading gains earlier in the day.
As on Friday morning official update, India had 724 active cases of COVID-19 including 47 foreign nationals and 17 deaths so far.
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