Das hints at rate cut; RBI presser turns a whimper

Many analysts over the past week have said the RBI has legroom to cut rates to the tune of 65 bps by June and some like Barclays and BofA have also spoken about the likelihood of an inter-meeting cut.

The RBI on Monday hinted at a rate cut but stopped short of a decision, belying market expectations at a hurriedly called presser even as it announced some liquidity enhancing measures to contain the economic fallout from the coronavirus.

But Governor Shaktikanta Das was quick to assure that the Reserve Bank has "enough policy tools and stands ready to take any measures" needed to help the economy tide over the impact of the coronavirus pandemic.

To a question why the rates were left unchanged at 5.15 per cent, Das said, "according to the prevailing law, the rate cut call has to be taken through the monetary policy committee, but I don't rule out anything.

“Depending on the evolving situation, we will decide on the timing of our action."

In two liquidity enhancing measures, Das announced another round of $2 billion dollar-rupee swap on March 23, and in another measure he said the RBI will continue to conduct the long-term repo operations (LTROs) of up to Rs 1 lakh crore as and when the market needs it.

On March 16, the RBI conducted the first dollar-swap for $2 billion under which the central bank buys rupee from the market by selling the dollars.

On the LTROs, it has already conducted four rounds worth Rs 1 lakh crore operations since February 14, after announcing it at the February 6 policy review.

Given the short notice for the press meet amidst the continuing mayhem in the market and the rising call for rates cuts to the tune of 65 bps by June including a pre-term cut of 25 bps by some analysts, the meeting spawned too much expectation of a rate cut.

Had he announced a rate cut, it would have been the first inter-meeting rate reduction since the monetary policy committee was instituted in February 2016.

The hurriedly called presser comes amidst widespread call for an inter-meeting rate cut following similar steps by the world's leading central banks like the US Fed which in a span of 10 days has cut the policy rates to near zero levels.

Similarly, the Bank of England had also slashed the rates by 50 bps and so did the European Central Bank.

Many analysts over the past week have said the RBI has legroom to cut rates to the tune of 65 bps by June and some like Barclays and BofA have also spoken about the likelihood of an inter-meeting cut (before the April 3 policy meeting).

He went on to add that "the RBI has several instruments at its command and stands ready, I repeat, the RBI has several policy instruments at its command and stands ready to take all necessary measures to ensure that the effects of the Covid-19 pandemic on the our economy are mitigated and financial markets and institutions continue to function normally".

And he defended no-rate cut decision-despite as many as 43 central banks, including the world's most powerful US Fed slashing its rates to near zero just three days ahead of the FOMC meeting on Saturday, doing so, saying the country is "relatively insulated from the global value chain to the extent the impact on the coronavirus pandemic will be less".

However, he was quick to admit that the pandemic will have its toll on both the domestic as well as the global economy as the lockdown measures will crimp economic activities.

On a question on the Covid-19 impact on the economy, Das said the RBI is estimating it and when the MPC meeting next time, we'll give our estimate on the impact on the economy.

"There will be some impact as our economy is also integrated with the global economy to some extent.

“We are evaluating it and we will announce it when we hold the policy meeting at the next MPC meeting," he said.

Admitting the huge risk aversion among investors, he said already the forex and bond markets hit-the indices have plunged as much as 28 per cent between February 20 and today while the rupee breached 74.35 mark to the dollar -- as they are not immune to the current volatile conditions.

"It is important to ensure that policy actions and policy reactions are carefully considered and calibrated so as to assuage sentiment and instill confidence.

“In this context, the Reserve Bank has been taking several calibrated measures over the past few days to ensure that financial markets and institutions remain sound and resilient and also to build confidence more generally in the financial system," Das said.

In fact, the response to the seven-day repo auction of Rs 25,000 crore conducted on March 13 has reassured us that the liquidity conditions remain comfortable.

It is important that policy space is used appropriately and is suitably timed to optimise its impact, he noted.

Das also said the forex reserves at over $487 billion remain comfortable to meet any exigency based on the current evaluation of domestic financial conditions.

He also urged banks and the public to go in for more digital payments which in the current context can also act a safety measure.

"In times like this, when the health authorities and government have announced to minimise social contact to minimise visiting of crowded places it may be a good idea to use digital modes of payment for carrying out various transactions," the governor concluded.

Photograph: PTI Photo