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By Shakir Husain
NEW DELHI, May 22 -- India's central bank on Friday cut its key policy rates to support an economy haemorrhaging jobs following the coronavirus blow.
Reserve Bank of India (RBI) governor Shaktikanta Das announced the repo rate has been reduced by 40 basis points from 4.4 per cent to 4.0 per cent and the reverse repo rate will come down from 3.75 per cent to 3.35 per cent.
"Judging that the risks to growth are acute, while the risks to inflation are likely to be short-lived, the Monetary Policy Committee believes that it is essential now to instil confidence and ease financial conditions further. This will facilitate the flow of funds at affordable rates and rekindle investment impulses," Das said.
The informal sector, which accounts for 90 per cent of employment in India, is staring at huge job losses amid restrictions on business activity and people's movement to contain COVID-19.
Indian banks are preparing for further pain as many businesses suffering revenue loss during the pandemic may default on loans.
The RBI governor said the Indian economy had been severely affected by the two-month lockdown.
"The top six industrialised states that account for about 60 per cent of industrial output are largely in red or orange zones," he said, referring to India's COVID-19 colour-coded containment plan in which red is considered most severe, followed by orange.
While consumer demand had been dealt a severe blow, agriculture and allied activities had provided a beacon of hope in the gloom, the RBI said.
India has recorded about 120,000 coronavirus cases so far, with a death toll of more than 3,500.