RBI rate action much needed, hope to see it soon: Analysts

Mumbai: Analysts felt let down by the Reserve Bank of India (RBI) as the central bank chose not to cut interest rates outside of the money policy review cycle, contrary to strong expectations in the market.

RBI, meanwhile, has announced to conduct a six-month dollar/rupee sell/buy swap on March 23. The central bank also announced LTRO of Rs 1 lakh crore in multiple tranches at the policy rate.

The Monetary Policy Committee (MPC) of RBI will take the call on an interest rate cut, the central bank’s Governor Shaktikanta Das said on Monday, adding that all options were on the table to counter the coronavirus blow.

“We do not rule out anything,” Das told reporters in Mumbai. The next MPC review is scheduled for March 31-April 3.

Here is what the analysts had to say:

Mihir Vora, Director & CIO, Max Life
The LTRO and swap announcements by RBI were expected, given the global environment and actions by other central banks. Rate action is also needed as the global economic situation is highly uncertain.

We expect a pre-policy action by the MPC, maybe as soon as this week. Fiscal measures are also needed in the current circumstances. We need coordinated action by RBI, Government and other market regulators and exchanges to prevent dislocation in any of the multiple markets and to cushion the impact of the Coronavirus-led slowdown.

Suman Chowdhury, President – Ratings at Acuité Ratings & Research
While RBI did not announce any immediate rate cut, it did indicate that a rate cut will be considered during the next MPC meet. It also announced two important liquidity measures – i.e. a rupee dollar swap to prevent any undue volatility in the exchange rate and additional LTRO to the extent of Rs. 1 Lakh Cr to address any sudden liquidity requirements in the banking system.

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Deepthi Mary Mathew, Economist at Geojit Financial Services
With the US Fed slashing the rates to a near-zero percent, there was pressure on the RBI to join the league by cutting the interest rates. Instead of going for a rate cut, RBI chose to conduct LTRO worth Rs 1 lakh crore to inject liquidity in the market. It is anticipated that RBI will cut the rates in the next MPC meeting scheduled in April. However, in the current scenario, the monetary stimulus will only have a limited impact on the economy.

Anuj Puri, Chairman, Anarock Property Consultants
Amid growing concerns over the economic impact of Covid-19, the RBI was expected to agilely tread along the lines of its western peers and announced an emergency rate cut to ease growing economic pressures and infuse liquidity into the system. It is one means of staving off a recession which may arise due to the coronavirus spread. Countries like US, England, Australia, New Zealand, etc. have all gone ahead with such emergency rate cuts in order to fend off the potential brunt of an exacerbated liquidity crisis.

The expected emergency rate cut did not materialize. The question of whether it would have helped the Indian real estate sector in the current scenario does, in any case, not have any easy answer. While sectors like hospitality and retail are staring at negligible business activity in many cities, but the reason is not lack of liquidity.

Satish Kumar, Research Analyst, Choice Broking
Contrary to market expectations, there was no rate decision, however the RBI announced liquidity measures including dollar/rupee swap on March 23 and LTRO of Rs 1 lakh crore in multiple tranches. These measures would maintain the rupee stability and ample liquidity in order to keep interest rates low and tackle the economic impact due to the Coronavirus outbreak.

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Ranjan Chakravarty, Economist and Product Strategist, MSE
The governor is right once again. He and RBI have taken the best decisions given the circumstances of turmoil with Covid-19. First, the decision to leverage the ranging USD/INR given the current Brent weakness and do a series of USD buy/sell swaps commencing next week is excellent. The last time RBI did this was at the turn of the year, was immensely successful and contributed significantly to Jan-Feb rallies in the market. Second, the expression of comfort on YES bank is most welcome. And finally, the decision not to cut in a knee jerk manner like the US Fed did is wise and the options are open before the MPC. RBI is being proactive while simultaneously keeping its major rate policy powder dry. Optimal. One hopes that RBI continues in exactly this vein



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