RBI rate cut likely if the economy falls out further due to coronavirus spread in India. RBI governor announced that RBI may take emergency monetary measures like its global counterparts in the wake of spreading novel coronavirus.
No Interest Rate Cut Says RBI
Several economists predicted that the monetary policy committee was likely to announce a rate cut. However, the RBI chose not to cut interest rates. Also, Shaktikanta Das clarified that they are not ruling out cutting of interest rate and the same will be reviewed in the next MPC review. The way shares of banks in India crashed in the past one week, RBI rate cut seems more likely.
Liquidity Measures Taken By RBI
Shaktikanta Das already announced two financial measures to stabilize the economy. The RBI announced US dollar sell/buy swap on March 23 worth USD 2 billion. Further, a Long Term Repo Operation in multiple tranches of up to Rs 1 trillion has been executed.
In a press conference, Shaktikanta Das stated that the Central bank will take necessary measures to bring desired outcomes amid the outbreak. Besides, the RBI will monitor developments in the outbreak to make sure that the decisions are neither premature nor delayed.
Economists Expectations on RBI Rate Cut
Mihir Vora, Director & CIO, Max Life stated that the economy needs coordinated actions of the government, market regulators and RBI to cushion the economy from the impacts of coronavirus led slowdown. Further, several experts appreciated RBI’s efforts to prevent undue volatility in the exchange rate. RBI addressed sudden liquidity requirements in the banking system by announcing USD INR swaps.
However, interest rate cut might be necessary as the monetary stimulus may have a limited impact on the economy. Countries like US, UK, Australia, and New Zealand have already taken up emergency rate cuts to minimize the economic brunt of the pandemic.
Co-ordinated Actions
Shaktikanta Das stated coronavirus outbreak as a major reason for strong coordinated actions among the countries. The central banks of several countries have been slashing rates over the past few days citing the outbreak. Also, the liquidity measures taken would help to maintain the rupee stability and ample liquidity in the market. Besides, it will keep interest rates low, tackling the economic impacts due to the outbreak.
In all, the governor assured that RBI will take steps from time to time according to the requirements and rate cut likely in future days.