RBI hints at rate cut in April 3 policy meet, announces more liquidity measures

Even as global central banks took aggressive rate action to deal with the coronavirus pandemic, India decided to wait until April 3 monetary policy review to take any step only after making a full assessment of the domestic and global situation.

Reserve Bank of India Governor Shaktikanta Das called an unscheduled press conference after the market hours, raising hopes of an immediate rate cut but stopped short of saying, “a decision on rate cut will be taken in the monetary policy committee meeting but do not rule out anything”.

In the meanwhile, he said, the central bank will use other instruments in its tool kit to calm financial markets if the need be.

“We will use various policy tool kits from time-to-time depending on the requirement. Our response will be calibrated and the efforts will be to see that our efforts are neither premature nor delayed,” said Das, adding foreign exchange and bond markets are not immune to the coronavirus.

The RBI had last week announced a $2 billion foreign exchange swap auction that will be conducted on March 23. The Governor said he would announce more such auctions depending on the success of the current one.

The central bank is widely expected to give a deeper than usual policy rate cut to deal with the impact of Covid-19 on the economy, when it meets for a three-day policy review in the first week of April and announces the decision on April 3. Some experts have even suggested a 65 basis point cut in the policy repo rate to bring it down to 4.5%, a level seen after a global financial crisis period.

Das mentioned sectors such as tourism, airlines, hospitality and domestic trade and transport suffering loss of activity due to Covid-19 impact.

Central banks across the world have already announced emergency measures to deal with the virus outbreak and its aftermath on the economy.

While the Federal Reserve slashed its benchmark interest rate by one percentage point to nearly zero and announced it would purchase more bonds to encourage lending on a weekend action, Bank of Japan said it would double its asset purchases to 12 trillion yen ($112 billion) a year to bolster the economy. South Korea and Hong Kong too announced rate cuts.