Economists, Market Experts On RBI’s ‘Whatever It Takes’ Package 
Shaktikanta Das, governor of the Reserve Bank of India (RBI), poses for a photograph following an interview at the central bank in Mumbai, India, on Tuesday, March 3, 2020. Photographer: Kanishka Sonthali/Bloomberg

Economists, Market Experts On RBI’s ‘Whatever It Takes’ Package 

The Reserve Bank of India's package of measures aimed at addressing the “severe” macroeconomic risks emerging from the local spread of coronavirus is comprehensive and addresses many of the key concerns, said economists and money market experts.

Some termed it as a “bazooka” fired by the Indian central bank as it joins global peers in doing ‘whatever it takes’ to tackle the risks to growth and financial stability.

RBI’s package announced on Friday included a steep 75 basis point repo rate cut, liquidity measures which will add Rs 3.75 lakh crore to the system, loan forbearance and relief for debt mutual funds and corporate bonds.

‘Firing A Bazooka’

This really is the RBI “firing a bazooka and nothing less,” said Chinoy, who is chief India economist at JP Morgan. Equally critically, the intent of the RBI was made very clear with Governor Shaktikanta Das saying twice that the RBI would do “whatever it takes”, he said.

Given that the repo rate, the reverse repo rate and cash reserve ratio has been cut, de facto, the rate cut will be more than 75 basis points, Chinoy said.

Given all the measures for liquidity, the inter-bank rate, including the tri-party repo rate, will be trading at much below the reverse repo rate. For all practical purposes, this is a 100 basis points rate cut and then some.
Sajjid Chinoy, Chief India Economist, JP Morgan

Chinoy added that loan forbearance at a time when business activity has come to a standstill was also important. “Financial stability has to be the over arching objective, and we got that,” he said. The decision to conduct targeted LTROs is also a positive move. It incentivises the banks to at least buy high grade corporate bonds. Since these bonds will not be marked to market, banks will be more willing to buy them.

Will more steps be needed?

“If the lockdown is longer or if the economic hit is greater and financial conditions do not ease even with these measures, the RBI may need to get even more creative,” Chinoy said.

‘A Comprehensive Package’

It is a fairly comprehensive package and the RBI has delivered a whole bazooka so to speak, said Sonal Varma, chief India economist at Nomura.

Cutting the reverse repo rate will disincentivise banks from parking excess liquidity with the RBI, targeted LTROs will help narrow credit spreads in the bond markets and the blanket cut in CRR will benefit all banks equally.

Varma added that the moratorium on loan repayments was needed considering the cash flow shock to business and consumers because of the Covid-19 shutdown.

The interest rate reduction, targeting credit spreads, easing liquidity and credit norms together is a very powerful package. The forward guidance given by the RBI that conventional and unconventional measures remain on the table, is a very strong signal to give. The RBI response came in later than expected, but it has been worth the wait. RBI has delivered whatever they could at this point in time
Sonal Varma, Chief India Economist, Nomura

While the MPC stayed away from giving a growth forecast, even a 21-day shutdown is expected to subtract 4.5 percentage points off annual GDP, she said.

‘In One Fell Swoop’

Pranjul Bhandari, chief India economist at HSBC, said the RBI delivered more than expected -- cutting the repo rate by 75 basis points, widening the interest rate corridor, infusing liquidity, and easing regulatory norms

“All of this will not just help immediately, but should also help in the reconstruction process after the COVID shock abates,” Bhandari wrote.

While the repo rate cut was of 75 basis points, the effective cut in rates will be between 75-115 basis points, she said. The CRR cut will help bank profitability, Bhandari added.

The focus now, Bhandari said, will shift towards fiscal measures.

We think the RBI delivered more than was expected, and touched upon each of its functions - setting rates, infusing liquidity, and overseeing regulation. Some benefits of these steps are likely to show up immediately while others could help in the reconstruction process once the 21-day lockdown, and more broadly the Covid proliferation is behind us.
Pranjul Bhandari, Chief India Economist, HSBC

‘The RBI Comes Through’

While RBI may have lagged somewhat in speed, it has certainly made up in magnitude with its announcements today, said Suyash Choudhary, head of fixed income at IDFC Mutual Fund. “The RBI has now put to rest the concern that it was failing to appreciate the required pivot to emergency conditions,” Choudhary wrote in a note.

Apart from the interest rate cuts and the additional liquidity provided, the design of the LTROs will get banks interest in buying corporate debt again and ease the strains in that market.

An important dimension that remains is for a very large open market operation (OMO) bond buying program. The format globally now is evolving around monetary expansion supporting fiscal policy and India needs to do the same.
Suyash Choudhary, Head - Fixed Income, IDFC Mutual Fund

‘Extraordinary Times, Extraordinary Measrues’

The RBI’s package exceeded expectations, said Ananth Narayan, professor at SPJIMR. “We are in a war like situation, and it calls for extraordinary measures.”

The RBI has delivered relief to the financial services system, ensuring forbearance on loans and ensuring financial stability, he said. The measures announced will correct some of the anomalies seen in the corporate debt markets and bond yields will ease

But more may be needed.

“This is going to be a long-drawn out situation and we are in uncharted territory. So, what the RBI can do is try and address issues as they come along.”

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