In his press conference, governor Das clearly indicated that the central bank is ready to take steps that will ensure the smooth functioning and stability of the country's financial system.
The Reserve Bank of India (RBI) held a press conference on March 16 wherein the central bank avoided a surprise rate cut and remained focussed on Yes Bank and the impact of coronavirus on the economy.
"We will mainly focus on 2 issues - Yes Bank and certain aspects related to the fallout of coronavirus and its impact on the economy," RBI Governor Shaktikanta Das said.
There was an expectation of a possible emergency rate cut, ahead of the central bank's monetary policy review scheduled to be held from March 31 to April 3.
The expectations of a rate cut were stronger as central banks across the world have affected rate cuts to provide liquidity to their respective economies, the latest one being the US Federal Reserve which slashed interest rates earlier today.
Here are the top five highlights of the RBI's press conference:
Moratorium on Yes Bank to be lifted: The moratorium on Yes Bank will be lifted on March 18 at 6 pm and a new board will assume the position on March 26 and administrator will vacate office, said the central bank's governor.
"This time, the identity of the bank in difficulty, which is Yes Bank, is retained. If required, RBI will support Yes Bank with respect to liquidity. I would like to assure depositors their money is completely safe and there is no need for worry. In the history of Indian banking, depositors of SCBs have never lost money. After 6 pm on March 18, they can withdraw their money but there is no need for panic withdrawal," Das said.
Analysts expect RBI's assurance on Yes Bank will be a major relief for private sector bank depositors.
"RBI has reiterated its support for the revival of Yes Bank, the plan for which has been finalised by both the regulator and government with an upfront equity infusion of Rs 10,000 crore from a group of public and private sector banks led by RBI. Hopefully, this will arrest any large scale withdrawals of deposits once the moratorium on the bank is lifted and prevent any panic among private sector bank depositors," said Suman Chowdhury, President – Ratings at Acuité Ratings & Research.
Liquidity measures: In light of coronavirus outbreak, Das said RBI had been taking some calibrated measures to ensure financial markets and institutions remain sound and resilient.
"The RBI has several instruments at its command and stands ready to take all necessary measures to mitigate the impact of Covid-19 on the Indian economy," Das said.
Aimed at infusing more liquidity in the financial system, the central bank proposed to conduct another 6 months US dollar/rupee sell-buy swap on March 23.
To conduct LTRO: RBI will conduct LTRO (long-term repo operation) in multiple tranches up to a total amount of Rs 1 lakh crore at the policy rate. This will be followed by a review of the performance of LTRO.
Jayesh Mehta, India Treasurer at Bank of America is of the view that the extra LTRO may not have an immediate impact on yield curve like last time.
A rate cut in the offing: Rate decision will be taken in the MPC meeting, RBI said, hinting that there is a possibility of a cut.
"I'm not ruling out any possibility on the rate cut. We are estimating the impact of Covid-19 and we will give our growth estimates in MPC. India is relatively insulated from the global value chain, but there will be some impact," Das said.
Industry experts are of the view that ensuring liquidity is more important at this juncture than the rate cut.
"Don’t think we’re in a situation where a rate cut is warranted right away. Ensuring liquidity is more critical than cutting rates at this moment," said Keki Mistry, HDFC VC and CEO.
"With the Federal Reserve slashing the rates to a near-zero percent, there was pressure on the RBI to join the league by cutting the interest rates. Instead of going for a rate cut, RBI chose to conduct LTRO worth Rs 1 lakh crore to inject liquidity in the market. It is anticipated that the RBI will cut the rates in the next MPC meeting scheduled in April. However, in the current scenario, the monetary stimulus will only have a limited impact on the economy," said Deepthi Mary Mathew, Economist at Geojit Financial Services.
An attempt to calm the nerves: In his press conference, governor Das clearly indicated that the central bank is ready to take steps that will ensure the smooth functioning and stability of the country's financial system.
From liquidity measures to hinting at a rate cut, the RBI signalled that it is ready with tools to mitigate the impact of coronavirus on the economy."RBI Governor's assurance that the central bank will do whatever it takes is a great reassurance during these difficult times. Announcement of Rs 1 lakh LTRO will certainly take care of liquidity needs. India is in a strong position since we have plenty of room to cut rates, if necessary. Governor's assurance regarding deposits in private banks is timely," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
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