India central bank slashes rates, warns of contraction

India, Asia’s third-largest economy, was struggling to gain traction with sluggish growth, record unemployment and banks reluctant to lend even before the coronavirus lockdown started. (Reuters)
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Updated 22 May 2020

India central bank slashes rates, warns of contraction

  • ‘The impact of coronavirus is turning out to be more than expected’
  • ‘GDP growth is estimated to remain in negative territory in 2021’

MUMBAI: India’s central bank slashed interest rates on Friday in an effort to contain the economic fallout of the world’s largest coronavirus lockdown and warned the economy could contract this year.
Even before almost all activity shut down in late March, Asia’s third-largest economy was struggling to gain traction with sluggish growth, record unemployment and banks reluctant to lend.
The Reserve Bank of India (RBI) slashed the repo rate, the rate at which it lends to commercial banks, by 40 basis points to 4.0 percent, the second cut this year.
“The impact of coronavirus is turning out to be more than expected. GDP growth is estimated to remain in negative territory in 2021,” bank governor Shaktikanta Das told an online news conference.
“RBI will continue to be vigilant and will take whatever measures are needed to be taken due to COVID-19 pandemic,” Das added.
The RBI also lowered the reverse repo rate, the rate at which it borrows from commercial banks, by 40 basis points.
The bank had cut the repo rate by 75 basis points in March as fears grew over the spread of the virus in the country of 1.3 billion people.
Recent data have also set alarm bells ringing.
Last month the purchasing managers index (PMI) of activity in the services sector suffered its sharpest contraction since it began in 2005, while inflation soared to 8.6 percent.
Das said the global economy was headed toward a recession because of coronavirus-induced disruptions to supply chains.
India witnessed its steepest decline in trade in April, he added, with exports and imports both slumping around 60 percent.
Earlier this month Prime Minister Narendra Modi announced a 20-trillion-rupee ($266 billion) stimulus package — 10 percent of the country’s GDP — to boost the battered economy.
Virus infections in India surged past 110,000 this week, with Mumbai — the worst-hit city — accounting for more than a fifth of the cases. Friday.


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.