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Reserve Bank of India sees GDP contract, cuts repo rate

Christian Fernsby |
Reserve Bank of India (RBI) governor Shaktikanta Das on Friday said the economy would likely contract in the first half of 2020-21 and moved to cut the repo and reverse repo rates by 40 basis points each to 4% and 3.35% respectively.

Topics: INDIA    GDP   

Reserve Bank of India (RBI) governor Shaktikanta Das on Friday said the economy would likely contract in the first half of 2020-21 and moved to cut the repo and reverse repo rates by 40 basis points each to 4% and 3.35% respectively.

“For the year as a whole, there is still heightened uncertainty about the duration of the pandemic and how long social distancing measures are likely to remain in place and consequently, downside risks to domestic growth remain significant,” Das observed in an address to the media.

The bond markets shrugged off the surprise 40 bps repo rate cut with the benchmark yield falling by just 3 bps to 5.75%.

The absence of much-anticipated measures to absorb the large supply of bonds, either in the primary or secondary markets, left the markets disappointed.

Ananth Narayan, professor-finance at SPJIMR, noted there was no surprise beyond the timing.

“In any case, with market repos being dealt at 2.5%, the policy repo rate has less significance for bond markets now than before,” Narayan said.