The Indian banking regulator – Reserve Bank of India (RBI), which had been closely watching the emerging developments in the economy as well as the financial markets since the beginning of this March – finally came out all guns blazing in its fight against the Covid-19 pandemic.
On Friday, the RBI reduced its policy rate to provide relief to the economy impacted by Covid-19. The apex bank reduced the repo rate - the rate at which it lends to other banks - by 0.75 percent to 4.40 percent.
This, however, was only a part of the slew of measures, which RBI took in an effort to minimise the impact of Covid-19. RBI also announced a number of liquidity measures that will result in infusion of $50.54 billion into the Indian financial system.
A much-needed moratorium was also announced by RBI Governor Shaktikanta Das on term loans for a period of three months – a decision that will provide relief to those who have taken home loans.
Promising to take more measures as and when required, the RBI chief said on Friday, “We are living through an extraordinary and unprecedented situation. Everything hinges on the depth of the COVID-19 outbreak, its spread and its duration. Clearly, a war effort has to be mounted and is being mounted to combat the virus, involving both conventional and unconventional measures in continuous battle-ready mode. Life in the time of COVID-19 has been one of unprecedented loss and isolation. Yet, it is worthwhile to remember that tough times never last; only tough people and tough institutions do.”
Experts are terming the RBI's move as a “bazooka” moment.
“RBI, very correctly so, announced a comprehensive bazooka covering all aspects of the economy by taking measures system-wide both through liquidity, rates and regulatory forbearance (retail as well as for industry) and also targeted measures to manage the corporate bond markets,” said Upasana Bhardwaj, Senior Economist, Kotak Mahindra Bank.
“The measures should help in tiding through the end of the year issues which many banks/institutions were fearing and will go a long way in cushioning the dislocations in various markets. We expect additional scope for 40-50bps of rate cut with any further easing and extension of measures depending on the nature of spread of Covid-19,” Bhardwaj added.
The experts are unanimous in their view and believe that the RBI has addressed all the fundamental issues in a comprehensive manner.
Joseph Thomas, Research Gead, Emkay Wealth Management said, “The RBI announcement is inclusive of all the possible actions from a monetary policy perspective, like the rate action to bring down policy rates directly, liquidity action to support effective transmission of lower rates to ultimate users of credit, and a number of regulatory and developmental measures. The measures have addressed all the fundamental issues in a comprehensive manner using both conventional measures like cut in the repo rate to the tune of 75 bps and the cash reserve ratio cut of 100 bps, and also substantial liquidity measures.”
Claiming that the relief given on the repayments in term loans is indeed a very timely, Joseph said it would serve to remove a lot of stress which a large number of borrowers may face in the coming days.
“This is a direct and targeted approach to the fluid situation in the face of an uncertain inflation and growth trajectory. This scaffolds the positive impact of the fiscal measures and strengthens our response to the adverse economic impact of the pandemic,” Joseph said.
Manju Yagnik, Vice Chairperson, real estate developer Nahar Group and Vice President National Real Estate Development Council (Maharashtra) said, “As an unprecedented measure, RBI announcing repo rate cut by 75 basis points would help new home-buyers and existing EMI payers with this much-needed reduction. This move is very timely and in sync with funds allocation to help 35 million building and construction works all over the country.”
Amid the Covid-19 crisis, the central banks of the United States, Australia, Hong Kong and mainland China, South Korea, the United Kingdom, along with the European Central Bank, Germany, France, Italy, Japan and Canada have announced one or more measures to help their economies.
Of these, the US Federal Reserve, the Bank of England, and Canada’s Bank of Canada lowered interest rates, while the others have announced multi-billion dollar packages to provide relief to their economies.
The Moody’s Investors Service on Friday released an outlook titled “Global Macro Outlook 2020-21: The coronavirus will cause unprecedented shock to the global economy".
“The G-20 economies will experience an unprecedented shock in the first half of this year and will contract in 2020 as a whole, before picking up in 2021. We have revised our growth forecasts downward for 2020 as the rising economic costs of the coronavirus shock and the policy responses to combat the downturn are becoming clearer. We now expect G-20 real GDP to contract by 0.5% in 2020, followed by a pickup to 3.2% growth in 2021."
"In November last year, before the emergence of the coronavirus, we were expecting G-20 economies to grow by 2.6% in 2020,” Moody’s Investor Service’s outlook report said.
has so far witnessed 17 deaths due to the coronavirus disease. The number of total Covid19 active cases among Indians has risen to 677 including 47 in foreign nationals. Meanwhile, a total of 67 people have recovered.