RBI to hold press meet at 4 pm, experts say rate cut may be on the cards

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The coronavirus pandemic continues to hit the sentiment on the Street as Sensex cracked 1,887.28 points (or 5.53 percent) at 32,216.20, while Nifty plunged 524.05 points and is trading at 9,431.15.

Banking stocks took the maximum beating as Nifty Bank fell over 6 percent led by RBL Bank which crashed over 22 percent followed by IndusInd Bank ( down 17 percent). ICICI Bank, Axis Bank and Federal Bank, each shed over 7 percent while IDFC First Bank and State Bank of India followed with loses of 6-9 percent.

The Reserve Bank of India (RBI) amid the Covid-19 pandemic is scheduled to hold a press meet at 4 pm on March 16 wherein it is expected to cut rates and announce measures to boost sentiment.

Rate cut rumors gained momentum after RBI governor, Shaktikanta Das, too, indicated early this month that there is room for coordinated rate action on account of the Corona spread. “There is a strong reason for a coordinated policy action,” Das said.

A number of economists told Moneycontrol that there have been instances in the past where the Indian central bank has effected pre-emptive rate cuts, although these cannot be termed ’emergency rate cuts’.

The US Federal Reserve in a surprise move cut its key interest rate to a target range of 0 percent and 0.25 percent on March 15. South Korea Central Bank has cut base rate by 50 bps to 0.75 percent while Bank of England along with central banks of Australia and New Zealand last week too cut its interest rates to bolster the economy.

India’s wholesale inflation eased to 2.26 percent in February, on the back of lower inflation in food articles especially onion and vegetables, data released by the commerce and industry ministry showed on Monday. Wholesale price inflation was 3.1 percent in January while annual inflation, based on monthly wholesale price index (WPI), was 2.93 percent in February 2018.

Here’s what top researchers and global broking firms expect from the upcoming RBI press meet: CRISIL: Expect an insurance rate cut

“For instance, after the 2008 global financial crisis, India has undertaken pre-emptive rate cuts. This time too, one can expect an insurance rate cut,” said DK Joshi, Chief Economist at rating agency CRISIL.

BofAML: 25 bps rate cut

Indranil Sen Gupta, Chief Economist at BofA Securities, too sees a 25 bps cut before/on April 3.

Soumya Kanti Ghosh, SBI: RBI could undertake more unconventional measures

Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, does not rule out a rate cut, he feels it is ‘unlikely to materially invigorate demand’. According to Ghosh, combination of a larger rate cut (notwithstanding the dangers of further cut in deposit rate) and/or indirect tax rate cut could be the policy options in an unprecedented global meltdown. One possibility is that RBI could undertake more unconventional measures to assure the system of more liquidity and bring down cost of funds beyond rate cuts.

JP Morgan: Interest rate cuts may not assuage investors

According to a report by global research firm JP Morgan, interest rate cuts may not assuage investors who are dealing with twin shocks of a slump in crude oil prices and the outbreak of Covid-19, leading to a sharp repricing in global markets, including in equities, fixed income, commodities and currencies.

“I don’t think it makes much difference now whether a rate cut comes or not. There is not much transmission of previous RBI rate cuts on bank lending rates anyway,” said Madan Sabnavis, Chief Economist at CARE Rating.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.

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