The Reserve Bank of India has carried out an extraordinary meeting, deciding to cut interest rates and announced steps to increase the liquidity of 3.2% of the country’s gross domestic product in order to combat the economic impact of the coronavirus. Meanwhile, the regular board meeting was due to take place on March 31st.

The discount rate was reduced by 75 basis points from 5.15% to 4.40%, Governor Shaktikanta Das announced on Friday after an emergency meeting of the interest rate committee. Central bankers have also reduced the cash reserve ratio, part of the deposits that creditors need to set aside as a reserve, by 100 basis points to 3% in order to increase liquidity.

The biggest reduction in interest rates since 2009 was accompanied by measures to increase liquidity in the banking system by adding up to 3.74 trillion rupees (50 billion USD) to support the financial markets and smooth volatility. Performing long-term repo transactions of up to 1 trillion rupees and introducing a quarterly moratorium on repayment of term loans to all banks and lenders as of March 1 is part of the steps.

“Combat efforts must be made, including conventional and unconventional standby measures”, said Shaktikanta Das, adding that interest cuts aim to support economic growth for as long as needed to mitigate the impact of Covid-19. “It is worth remembering that difficult times do not last forever, and hard-working people and institutions do it”, added he.

This decision is one of the central steps of the central bank in support of the economy and was made just a day after the announcement of stimulus amounting to 1.7 trillion rupees by Finance Minister Nirmala Sitharaman.

Prime Minister Narendra Modi’s government has imposed a three-week general quarantine on its 1.3 billion population, which began on Wednesday. The government’s spending plan announced Thursday includes remittances to the poorest and steps to ensure their food security.

“The blockade will lower consumption and push the economy to shrink in the quarter from April to June”, wrote an ING Groep economist, Prakash Sakpal. India’s economy, which registered 4.7% growth in the last quarter of last year, has not seen a contraction for at least two decades, official government figures say.