RBI Cuts Rates To Lowest Since 2000 To Revive Shrinking GDP

High frequency data has showed that demand is virtually non-existent. The country's dominant services industries crashed last month, while car sales also collapsed.

The Reserve Bank of India cut interest rates in an unscheduled announcement on Friday, ramping up support for an economy it expects will contract for the first time in more than four decades.

Governor Shaktikanta Das reduced the benchmark repurchase rate by 40 basis points to 4 per cent, the lowest since 2000, when the measure was introduced. The reverse repurchase rate was cut to 3.35 per cent from 3.75 per cent. The monetary policy committee, which met ahead of its scheduled meeting in early June, kept its "accommodative" stance, implying it could ease further.

"Going forward, we will continue to be vigilant and we will take whatever measures are necessary to meet the Covid-related challenges which are ahead of us," Mr Das said. "The RBI will continue to remain vigilant and in battle readiness to use all its instruments and even fashion new ones, as recent experience has demonstrated, to address dynamics of the unknown future."

The central bank expects the economy to contract in the fiscal year through March 2021 as the impact of the coronavirus and measures taken to contain the pandemic severely affect domestic activity.

The yield on the most-traded 2029 bonds fell 14 basis points to 5.89 per cent, while that on the new 10-year notes dropped nine basis points to 5.68 per cent. The rupee weakened and the S&P BSE Sensex index erased gains of as much as 0.6 per cent to halt a three-day rally.