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RBI's promise of 'action' against Coronavirus stokes hope of an interest rate cut

RBI's promise of 'action' against Coronavirus stokes hope of an interest rate cut
Business1 min read
With the rising coronavirus (COVID-19) cases in India and abroad, a policy rate cut expectation is fast gaining currency, especially after the US Federal Reserve slashed its benchmark policy rates by 50 basis points in an emergency move on Tuesday.

The Reserve Bank of India (RBI) has already dropped hints of a rate cut, saying that it is monitoring global and domestic developments closely and continuously and stands ready to take "appropriate actions" to ensure the orderly functioning of financial markets.

"With new evolving information, the nudge is likely to come sooner than before. The RBI, on its part, has a dominant revealed current preference for bringing back credit growth. It is also noteworthy that the RBI put out an assurance statement with respect to evolving developments, despite already being in the midst of substantial incremental non- traditional monetary easing," Suyash Choudhary, Head - Fixed Income, IDFC AMC said in a note.

HDFC Bank's Chief Economist Abheek Barua also said that: "I suspect that over the next few days we will see some kind of response from the RBI, whether it is tomorrow itself or not is an open question."

"I think RBI Governor (Shaktikanta) Das will go with the rest of the central banks and if not tomorrow, over the next few days... if other banks were to cut, I think RBI will also follow."

Experts said that it is reasonably obvious that more widespread global easing should be forthcoming. This was indicated somewhat by the Fed Chair in the press conference but also for the reason that no other major economy can afford a tightening in their relative financial conditions with respect to the US.

So now that the US has moved, other banks may anyway have to move as well. However, the quantum and form will depend upon space and format respectively, and individual revealed preferences," IDFC AMC said in a note.


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