India’s central bank slashes interest rates as coronavirus spreads

The Reserve Bank of India said the benchmark repo rate — the level at which it lends to commercial banks — would be cut by 75 basis points to 4.40 percent. (Reuters)
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Updated 27 March 2020

India’s central bank slashes interest rates as coronavirus spreads

  • The reverse repo rate, the rate at which it borrows from commercial banks, was lowered 90 basis points
  • Analysts say India’s economy is likely to see its lowest annual expansion since that year, as the virus batters its industries

MUMBAI: India’s central bank cut interest rates sharply Friday as the coronavirus outbreak deepens fears for Asia’s third largest economy, which was already battling a prolonged slowdown.
The move, which came ahead of the bank’s scheduled meeting next month, followed similar measures around the world as finance chiefs struggle to stave off what could be the worst economic crisis in decades.
As manufacturing activity and consumption grinds to a halt under a lockdown, the Reserve Bank of India (RBI) said the benchmark repo rate — the level at which it lends to commercial banks — would be cut by 75 basis points to 4.40 percent.
The reverse repo rate, the rate at which it borrows from commercial banks, was lowered 90 basis points.
The bank also cut the amount of cash lenders must set aside as reserves by one percentage point to three percent to encourage lending to small businesses hit by the crisis.
“This kind of uncertain outlook has never been seen before... finance is the lifeline of the economy and keeping it active is of paramount importance for the RBI,” central bank governor Shaktikanta Das said in a surprise announcement in Mumbai.
He added that India needed conventional and non-conventional measures to tackle the unprecedented situation depending on the spread, intensity, and duration of the COVID-19 outbreak.
India has so far registered 694 cases for its 1.3-billion-strong population but experts believe the numbers could rise exponentially in the weeks ahead.
Earlier this week, the government imposed strict restrictions asking citizens to stay indoors, only allowing essential services to function.
Das said India would struggle to achieve fourth-quarter growth projections of 4.7 percent as major global economies faced the risk of recession.
The bank last slashed its rates by 75 points in November 2008, during the global financial crisis.
Analysts say India’s economy is likely to see its lowest annual expansion since that year, as the virus batters its industries.
“The RBI announcement ensures banks will have enough funds for lending and will inject liquidity into parts of the economy ... through this tremendously challenging period,” Sameer Narang, an economist with the Bank of Baroda, said.
The measures “cannot improve the growth rate because the growth rate depends on revenue and that depends on how COVID-19 progresses and how the lockdown is managed,” said Sujan Hajjra, an economist with Anand Rathi Securities in Mumbai.
But they “will keep the economy from plunging into a deep recession,” he said.
India on Thursday announced an economic welfare package of 1.7 trillion rupees ($22.54 billion) to help its poorest citizens with direct cash transfers and food subsidies for three months.
After Das’s announcement, shares on the Bombay Stock Exchange Sensex Index rose almost one percent, while the Nifty 50 jumped by almost two percent.


EU pledges to stay green in virus recovery

Updated 29 May 2020

EU pledges to stay green in virus recovery

  • To help economies from the 27-nation bloc bounce back as quick as possible

BRUSSELS: The European Commission pledged on Thursday to stay away from fossil-fueled projects in its coronavirus recovery strategy, and to stick to its target of making Europe the first climate neutral continent by the middle of the century, but environmental groups said they were unimpressed.

To weather the deep recession triggered by the pandemic, Commission President Ursula von der Leyen has proposed a €1.85 trillion ($2 trillion) package consisting of a revised long-term budget and a recovery fund, with 25 percent of the funding set aside for climate action.

To help economies from the 27-nation bloc bounce back as quick as possible, the EU’s executive arm wants to increase a €7.5-billion ($8.25 billion) fund presented earlier this year that was part of an investment plan aiming at making the continent more environmentally friendly.

Under the commission’s new plan, which requires the approval of member states, the mechanism will be expanded to €40 billion ($44 billion) and is expected to generate another €150 billion in public and private investment. The money is designed to help coal-dependent countries weather the costs of moving away from fossil fuels.

Environmental group WWF acknowledged the commission’s efforts but expressed fears the money could go to “harmful activities such as fossil fuels or building new airports and motorways.”

“It can’t be used to move from coal to coal,” Frans Timmermans, the commission executive vice president in charge the European Green Deal, responded on Thursday. “It is unthinkable that support will be given to go from coal to coal. That is how we are going to approach the issue. That’s the only way you can ensure you actually do not harm.”

Timmermans conceded, however, that projects involving fossil fuels could sometimes be necessary, especially the use of natural gas to help move away from coal.

The commission also wants to dedicate an extra €15 billion ($16.5 billion) to an agricultural fund supporting rural areas in their transition toward a greener model.

Von der Leyen, who took office last year, has made the fight against climate change the priority of her term. Timmermans insisted that her goal to make Europe the world’s first carbon-neutral continent by 2050 remained unchanged, confirming that upgraded targets for the 2030 horizon would be presented by September.

Reacting to the executive arm’s recovery plans, Greenpeace lashed out at a project it described as “contradictory at best and damaging at worst,” accusing the commission of sticking to a growth-driven mentality detrimental to the environment.

“The plan includes several eye-catching green `options,’ including home renovation schemes, taxes on single-use plastic waste and the revenues of digital giants like Google and Facebook. But it does not solve the problem of existing support for gas, oil, coal, and industrial farming — some of the main drivers of a mounting climate and environmental emergency,” Greenpeace said.

“The plan also fails to set strict social or green conditions on access to funding for polluters like airlines or carmakers.”

Timmermans said the EU would keep investing in the development of emission-free public transportation, and promoting clean private transport through the EU budget.