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Corona Impact: Reserve Bank expected to cut rates

Corona Impact: Reserve Bank expected to cut rates
March 16
16:15 2020

MUMBAI: To deal with the economic fallout of coronavirus outbreak, the Reserve Bank of India is expected to ease key lending rate soon. Accordingly, industry watchers contend that RBI might go ahead and ease lending rate before its scheduled MPC meet slated for April.

The move might happen as early as late Monday or in the coming week. In fact, experts pointed-out that a conducive rate cut scenario has been built with the decline in both CPI and WPI rates have declined in February. Last month’s retail inflation has shown a decline to 6.58 per cent from January’s 7.59 per cent.

However, the retail inflation level continued to remain much above the RBI’s medium-term target for the CPI rate of 4 per cent with a band of +/- 2 per cent. Nevertheless, even globally, US FED and BoE have cut rates to aide the industry.

“Even as RBI’s 4QFY20 inflation forecast of 6.5 per cent will likely be overshot by ~25-35bps, latter half of the year will see substantial correction in inflation, much below the 4 per cent target,” Edelweiss Securities’ Lead Economist Madhavi Arora told IANS.

“Taking cues from other Asian central banks and the G-4 brigade, we think MPC could front-load the impending rate cuts in a pre-emptive fashion, if needed. The RBI may also continue with unconventional measures to ensure the credit spreads normalize in the current credit stress situation, led by both domestic and external factors.”

She added that RBI may also go in for a “LTRO 2.0” in line with the BoE and ECB style of long-term bank lending schemes. Recently, RBI had conducted a Long Term Repo Operations (LTRO) aimed at providing additional durable liquidity to the Banking Sector to spur lending.

According to Karan Mehrishi, Lead Economist at Acuite Ratings and Research: “We believe an out of turn rate cut is possible to the tune of 50 bps. This is part of a global consolidated effort by central banks led by the Us Federal Reserve to calm the markets, as sovereign and high rated debt is experiencing yield spikes.”

“Coronavirus threat can be seen as a trigger point behind the move.” IANS

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