INSUBCONTINENT EXCLUSIVE:
By Ashok GautamIn a move that was not quite unexpected, the US Fed on March 3, 2020 cut its benchmark rate by an aggressive 50 bps, which
now brings it to the 1-1.25% range
This followed the pledge taken by G-7 finance ministers earlier this week to take coordinated action
The Fed action acknowledges the need for central banks to provide the required stimulus to tackle the unknown impact of the virus spreading
We have seen similar actions of varied degrees from some other central banks
Many other central banks are now expected to follow suit.
We expect the coordinated efforts, made by the central banks globally, to tame the
impact of coronavirus, are likely to get the support from the Reserve Bank of India as well
RBI Governor has given ample indications that there is further room available to cut interest rates, if required, in the face of the likely
threat to the economy from the virus outbreak.
RBI is also expected to continue to ensure sufficient liquidity in the market to boost
economic activities and contain the negative effect of the coronavirus on India due to a reduction in global demand as well as disruption in
Keeping in view of the continued accommodative stance of RBI, key policy announcements, fiscal and monetary and evolving global growth
concerns, the money market as well as bond markets are expected to trade with a softening bias in the near term
Further, G-sec market may take cue from the evolving domestic and global developments
We expect the yield curve to flatten further, with the long-term rates falling more than the near-term rates
The market has already seen LTRO of Rs 75,000 crore with the remaining Rs 25,000 crore scheduled for March 9
We also expect RBI to contemplate extension of long-term repo operations, as an additional tool
With the previously announced CRR concession for credit buildup in certain segments, we believe that ample liquidity, availability of credit
at lower rates will be maintained.
We expect a rate cut of at least 25 basis points by RBI, notwithstanding high inflation, based on the
growth concerns which have been amplified by the low GDP growth print for Q3
However, whether RBI will wait for the next MPC meeting to cut rates or make the cut before the policy will be an interesting thing to watch
out for.
(Ashok Gautam is Executive Director - Head Treasury at IDBI Bank)
