Corona Impact: Reserve Bank expected to cut rates

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Mumbai: To deal with the economic fallout of the coronavirus outbreak, the Reserve Bank of India is expected to ease the key lending rate soon.

Accordingly, industry watchers contend that RBI might go ahead and ease the lending rate before its scheduled MPC meet slated for April.

The move might happen as early as late Monday or in the coming week.

In fact, experts pointed out that a conducive rate cut scenario has been built with the decline in both CPI and WPI rates that have declined in February.

Last month’s retail inflation has shown a decline to 6.58 percent from January’s 7.59 percent.

However, the retail inflation level continued to remain much above the RBI’s medium-term target for the CPI rate of 4 percent with a band of +/- 2 percent.

Nevertheless, even globally, US FED and BoE have cut rates to aide the industry.

“Even as RBI’s 4QFY20 inflation forecast of 6.5 percent will likely be overshot by ~25-35bps, the latter half of the year will see the substantial correction in inflation, much below the 4 percent target,” Edelweiss Securities’ Lead Economist Madhavi Arora told IANS.

“Taking cues from other Asian central banks and the G-4 brigade, we think MPC could front-load the impending rate cuts in a pre-emptive fashion if needed. The RBI may also continue with unconventional measures to ensure the credit spreads normalize in the current credit stress situation, led by both domestic and external factors.”

She added that RBI may also go in for an “LTRO 2.0” in line with the BoE and ECB style of long-term bank lending schemes.

Recently, RBI had conducted a Long Term Repo Operations (LTRO) aimed at providing additional durable liquidity to the Banking Sector to spur lending.

According to Karan Mehrishi, Lead Economist at Acute Ratings and Research: “We believe an out of turn rate cut is possible to the tune of 50 bps. This is part of a global consolidated effort by central banks led by the Us Federal Reserve to calm the markets, as sovereign and high rated debt are experiencing yield spikes.”

“Coronavirus threat can be seen as a trigger point behind the move.”

March 16 (IANS)

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