The RBI is under pressure to prioritise growth over inflation and cut its policy rates to limit any damage on the economy because of the coronavirus — just as the US Federal Reserve did on Tuesday.
Opinions, however, remain divided on whether the RBI will go for a rate cut or continue with unconventional actions such as long term repo operations (LTRO). No emergency meeting of the monetary policy committee (MPC) of the RBI has been scheduled till Wednesday.
On Tuesday, the US central bank announced a bold 50 basis point reduction in interest rates to combat the impact of the virus. Before that, the Reserve Bank of Australia had brought down the benchmark rate by 25 basis points. Though both these central banks had space for monetary easing, experts feel the RBI is not in the same sweet spot given high retail inflation, which touched 7.59 per cent in January.
The key question being asked is whether the MPC will shed its inflation worries and give precedence to growth. Suyash Choudhary, head – fixed income, IDFC AMC, said: “Current events may allow the MPC to find room sooner than expected for incremental rate cuts.”
Economists at JP Morgan said the RBI may cut interest rates on or before the April meeting. However, some feel the RBI will continue with other steps to improve credit flow.
IMF concern
IMF chief Kristalina Georgieva said on Wednesday that the coronavirus epidemic poses a “serious threat” and will slow growth in the world economy to below the 2.9 per cent posted last year. The outbreak “is no longer a regional issue, it is a global problem (that) calls for global response,” Georgieva told reporters.
Stocks fall again
Equity indices resumed their downward march on Wednesday as investors were spooked by a spike in virus cases in India. After gyrating over 945 points, the Sensex settled 214.22 points, or 0.55 per cent, lower at 38409.48. The Nifty closed 52.30 points, or 0.46 per cent, down at 11251.
The rupee swung wildly before closing down 20 paise at 73.39 against the dollar.
Banks were the biggest drag on the Sensex, with IndusInd Bank, HDFC Bank, SBI and ICICI Bank dropping up to 3.85 per cent.
