RBI Press Conference: Governor Shaktikanta Das Stands Ready To Act, Doesn’t Rule Out Rate Cut To Tackle Covid-19 Impact

RBI Governor Shaktikanta Das today said he is not “ruling out” the possibility of a rate cut. However, that will be discussed in the bi-monthly monetary policy committee meeting as mandated by the law.

Das also said that after the favourable response to the RBI's $2 billion forex swap auction, the central bank will conduct another dollar-rupee sell swap.

The RBI will also conduct further long term repo operations of up to Rs 1 lakh crore in multiple tranches.

Other Highlights:

• Important that policy space is used properly and is suitably timed to optimise impact.
• Will take a clearer view of global slowdown at MPC meeting.
• India not immune to impact from Covid-19 pandemic.
• RBI's reconstruction plan for Yes Bank is “credible and sustainable”.
• The RBI will provide any additional liquidity if required for Yes Bank.

Watch the full press conference and what market experts made of the RBI’s decisions.

Arvind Chari, Head Of Fixed Income, Quantum Advisors

• RBI still prioritising liquidity action, over rate action.
• Right now, RBI looks more worried about rupee depreciation.
• Expect rate action to follow.
• Another set of LTROs significant considering current liquidity situation.
• Any liquidity measure isn't going to drive credit demand; but will be good for bond markets.
• Much of the yield fall today was also due to the Fed action; market expected RBI to follow suit.
• Have seen foreign outflows over the last 1.5 weeks; but the rupee is still overvalued on a real effective exchange rate basis.

Abheek Barua, Chief Economist, HDFC Bank

• If central bank calls a press conference in the middle of the worst financial crisis since 2008, you expect something more substantial.
• Whether central bank action will make an immediate difference or not, is a different question.
• Expected something more substantial, like a rate cut or regulatory forbearance for sectors already affected.
• These are extraordinary times, RBI should have used the platform to make some significant announcement.
• Disappointed that nothing substantial was announced, but glad that the governor assured that nothing is off the table.

Rahul Bajoria, Chief Economist, Barclays Investment Bank

• Today's announcements effectively close the door on an inter-meeting move.
• Rate cut remains very much on the table; but likely to be taken by MPC rather than through emergency meetings.
• Demand for LTROs might be weaker if the market is expecting another rate cut.

India’s 10-year sovereign bond pared gains after the RBI Governor's press conference.

Bonds had rallied earlier in the day amid growing expectation that the RBI could announce an emergency rate cut to tackle the impact of the coronavirus outbreak. Traders were hoping that the RBI will follow other global central banks with some coordinated policy action.

RBI Governor Shaktikanta Das said that after the favourable response to its $2 billion forex swap auction, the central bank will conduct another dollar-rupee sell swap. Details of this will be notified separately. The auction will be conducted on March 23.

The RBI will also conduct further long term repo operations of up to Rs 1 lakh crore in multiple tranches.

The RBI Governor Shaktikanta Das said that the central bank has a wide variety of instruments and is ready to use them whenever needed.

Das said that the central bank will take a clearer view of the global slowdown at the monetary policy committee meeting. He added that domestic liquidity continues to be stable.

India is not immune to the coronavirus outbreak and a synchronized slowdown in global trade could have an effect on the Indian economy too, the RBI Governor said. “Covid-19 pandemic is disrupting the economy in a wide swathe of affected countries.”

• Financial conditions have tightened worldwide as a result of Covid-19 pandemic.
• Tentative estimates of loss of global growth placed at 0.4-1.5 percent.

The RBI will provide any additional liquidity if required for Yes Bank.

Yes Bank depositors will be again allowed to withdraw money from Wednesday 6 P.M., the RBI Governor said. “There is no need for panic withdrawals. Depositors’ money continues to be safe.”

The RBI Governor said that a credible and sustainable rescue plan has been put in place for Yes Bank. “It is also an instance, perhaps the first of its type, one of public-private partnership for the revival of a private bank.”

The RBI received more than twice the number of bids for foreign exchange swaps that it had auctioned on March 16.

RBI got bids worth $4.67 billion, compared to the $2-billion dollar-rupee swaps it had put up for sale. RBI accepted bids worth $2.06 billion, it said in a press release.

The cut-off premium was 156 paise.

The central bank had conducted the swap auction to ensure that dollar liquidity in the forex market does not run dry.

The Reserve Bank of India has released an advisory with a host of steps to ensure the operational and business continuity of banks amid the coronavirus outbreak.

The RBI said:

• Banks should have a monitoring mechanism on virus.
• Banks should encourage customers to use digital facilities.
• Banks should take immediate measures to manage risks.
• Quick response team may be constituted to provide updates to the top management and act as a single point of contact with regulators/outside agencies.

Reserve Bank of India Governor Shaktikanta Das will address a media conference at 4 P.M. where he is widely expected to announce emergency measures to tackle the economic fallout of the coronavirus outbreak.

Already, a number of central banks across the world have taken a slew of actions to contain the impact of the Covid-19 pandemic which is threatening to now upend the global economy.

Overnight, the U.S. Federal Reserve slashed its fed funds rate by a percentage point to near zero and promised to boost its bond holdings by at least $700 billion. The Fed, Bank of Japan, European Central Bank, Swiss National Bank, Bank of Canada and Bank of England also announced swap lines to support the international supply of the world’s reserve currency.

The governor’s press conference will be keenly watched when already India is in the midst of the worst economic slowdown in at least five years. For the financial year 2019-20, GDP growth is expected to settle at below 5 percent. In its first estimate of growth in 2020-21, the RBI had said that growth might pick up to 6-6.5 percent.

Last week, the RBI had announced a $2-billion forex swap to ensure that the foreign exchange market is adequately supplied with dollars. It also offered short-term rupee liquidity.

Follow the RBI Governor’s press conference live here.