Coronavirus Impact: Monetary Policy Can’t Be A Replacement For Fiscal, Public Health Policy: JPMorgan’s Jahangir Aziz

As central banks across the globe, including India, announce several measures to stimulate liquidity amid the coronavirus pandemic, JP Morgan’s Jahangir Aziz said the issue couldn’t be solved by monetary policy.

“This is primarily a public health and fiscal policy issue,” the head of emerging markets economic research at the investment bank told BloombergQuint in an interview. “Monetary policy cannot be a replacement for fiscal policy and public health policy.”

Central banks globally have slashed rates to pump money into their respective economies. While the U.S. Federal Reserve reduced its rate to nearly zero, Australia, Europe and Hong Kong, among others, announced fiscal relief packages. A few put money directly into the hands of people. The Reserve Bank of India, though refrained from cutting rates, said it would conduct a second six-month U.S. dollar sell-buy swap on March 23 and long-term repo operations worth up to Rs 1 lakh crore to ensure better liquidity in the banking system.

This comes as the number of confirmed Covid-19 cases mount in India and across the world. Asia’s third-largest economy has also locked down 75 districts where cases of infection and death have been reported in order to contain the spread.

Aziz said while the central banks would play their part, a transfer of money to protect balance sheets of small businesses and households was pertinent.

He is also worried about the lack of public safety measures. “We do know that if you shut down the economy for two weeks, the cost is going to be significant,” he said. A shutdown, however is inevitable, according to him. “We’re still continuing with the experiments with voluntary shutdown for one day, and that too on a Sunday. To me, it doesn’t really seem that we have learnt the lessons from other countries, especially Italy.”

Impact On India’s Economy

According to Aziz, it is very difficult to analyse the impact of the virus outbreak on the Indian economy as most governments have taken very different steps leading to different results and timelines.

“If we go by China’s template, production can be revived fairly quickly once numbers stabilise, he said. “You will see financial markets react very positively once we get China’s production data,” he added.

Aziz, however, is hopeful that the outbreak will not destroy capital. “Ultimately, it will pass. It may pass with a devastating effect on people’s lives, but at the end it will not destroy capital.” he said. “Capacity will remain the same and you can very quickly ramp up.”

Watch | Jahangir Aziz On Protecting India’s Economy From Permanent Damage From Coronavirus