The Reserve Bank of India has announced a slew of measures to alleviate the effect of the novel Coronavirus on the economy. It reduced interest rates by 75 basis points (bps) to 4.40% with immediate effect, and continued its accommodative stance “as long as it is necessary to revive growth and mitigate the impact of Coronavirus on the economy, while ensuring that inflation remains within target.”
The RBI also reduced the reverse repo rate (the rate which the RBI pays to borrow short-term funds from banks) by 90 bps to 4% to disincentivise banks from hoarding money, and the cash reserve ratio (CRR) by 100 bps to release ₹1.37 lakh crore into the system.
Here’s how the industry and analysts reacted to the RBI’s decision:
Upasna Bhardwaj, senior economist, Kotak Mahindra Bank
The 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. 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 the spread of Covid-19.
Abhimanyu Sofat, head of research, IIFL Securities
The RBI’s bold set of measures amounting to ~3.2% of GDP to fight Coronavirus will be well taken by the market . Measures of no asset classification downgrade for three months on term loans, working capital loans moratorium will be a relief for the industry. Providing liquidity in investment grade corporate bonds will help in improving the currently stalled credit markets. Additionally, CRR cut of 100 bps along with repo and reverse repo cuts are likely to help induce additional liquidity. We had hoped for an additional liquidity window for NBFCs & MFs which, hopefully with the possible backstop from the government, the RBI may be able to provide in the future.
Abizer Diwanji, partner and leader, financial services, EY India
It is a good move that will help enhance the liquidity levels for banks but in my view, banks were liquid enough. Apart from forbearance, I was expecting measures to be introduced on turnaround of stressed assets including making June 7 SLA mandatory, given NCLT issues. Since foreign funds would not be forthcoming, the RBI should allow banks to earmark funds for rescue financing as it is likely to get expensive which should have NPA forbearance for two years for restructuring under the June 7 2019 circular.
Anuj Puri, chairman, ANAROCK Property Consultants
The move will push credit flow into all industries reeling under the impact of the Coronavirus. The repo rate cut will fuse cash flows into the system and ensure that consumption disruption is minimised. It will effectively benefit all sectors, including real estate.
Thomas John Muthoot, chairman and managing director, Muthoot Pappachan Group
Various measures to nudge banks to lend and to inject liquidity into the system, will help in passing the benefit to potential borrowers; people with small businesses, self-employed and so on, are in a dire situation right now, with everything shut down.
Niranjan Hiranandani, president, Assocham and NAREDCO
In a crucial time where the Indian economy is battling the exponential contagion, fresh liquidity pumped in the system will certainly help to mitigate the stressed cash flow and debt pressure in the economic system.
Suyash Choudhary, head, fixed income, IDFC AMC
Market participants including ourselves have lately lamented the somewhat underwhelming response from the RBI to a rapid tightening in financial conditions evidenced in virtual freezing in even quality parts of the local financing market. However, while the RBI may have lagged somewhat in speed it has certainly made up in magnitude with its announcements today.
Shishir Baijal, chairman and managing director, Knight Frank India
We are hopeful that these measures will be complemented by further fiscal stimulus measures by the central and state governments to support demand in the economy. We welcome these measures by the RBI and see this as a big relief for the economy in general and for the real estate sector which would have been one of the worst-affected owing to its linkages with overall economy.