RBI Governor Shaktikanta Das noted in the last monetary policy meeting that India's near-term growth outlook has deteriorated sharply: initially reflecting global spillovers and the amplification of the impact of COVID-19; and thereafter, due to the much needed efforts mounted by the Government to contain the pandemic by declaring a nationwide lockdown of 21 days up to April 14, 2020. Prior to the outbreak, some high frequency indicators such as manufacturing, railway freight traffic, exports and imports in January/February had improved after several months of contraction/deceleration. With COVID-19, however, industry and service sector activities are likely to be severely impacted and the extent of the adverse impact would depend upon the intensity, spread and duration of COVID-19.
Weaker overall demand outlook and lower crude oil prices should keep upside risks to inflation firmly contained, even in the face of temporary supply chain disruptions and scope for opportunistic use of pricing power. Arresting risks to the growth outlook and preserving financial stability should, accordingly, receive the highest priority. The RBI had reduced the policy repo rate under the liquidity adjustment facility (LAF) by 75 basis points to 4.40 per cent from 5.15 per cent with immediate effect. Accordingly, the marginal standing facility (MSF) rate and the Bank Rate stand reduced to 4.65 per cent from 5.40 per cent.
Further, consequent upon the widening of the LAF corridor as detailed in the accompanying Statement on Developmental and Regulatory Polices, the reverse repo rate under the LAF stands reduced by 90 basis points to 4.0 per cent. The MPC also decided to continue with the accommodative stance as long as it is necessary to revive growth and mitigate the impact of coronavirus (COVID-19) on the economy, while ensuring that inflation remains within the target.
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