Expert views: RBI unexpectedly slashes repo rate by 40 bpsExpert views: RBI unexpectedly slashes repo rate by 40 bps
FILE PHOTO: People queue for food during the coronavirus outbreak in New Delhi, India

(Reuters) – The Reserve Bank of India (RBI) on Friday unexpectedly slashed its key policy rate for a second time this year, in a move to counter the economic fallout from an ongoing nationwide lockdown to contain the spread of the coronavirus.

The central bank cut the repo rate by 40 basis points to 4%. The reverse repo rate was also reduced by 40 basis points to 3.35%.


“Rate cut of 40 bps is in line with expectations as also the extension of loan moratorium. The measure to convert the moratorium interest payment into a term loan payable in course of FY21 is the most important announcement.

“This can reduce NPA, at least in the next 12 months. The additional liquidity measures remain rather muted. The RBI also remains circumspect on growth and inflation outlook.”


“The RBI flagged risks of a negative growth print this year, while holding back on a point target. They expect disinflationary forces to dominate, suggest they open for further reduction in cuts.

“Transmission will be watched closely with shorter tenor rates already well below the repo rate, given the surplus liquidity conditions, with benchmark-linked lending rates expected to correct down along with adjustments in saving rates.

“Moratorium on term loans was not only extended but repayment terms (interest payments) relaxed to prevent a cash-squeeze for borrowers. Relief for the bond markets front was absent and until a formal announcement is made, we expect intermittent securities’ purchase as part of liquidity operations to continue.”

(Reporting by Nivedita Bhattacharjee in Bengaluru and Abhirup Roy in Mumbai, Editing by Sherry Jacob-Phillips)