In light of the recent events, the RBI Governor Shaktikanta Das, called an impromptu press conference to announce the measures they will take, to tackle the two major issues the Indian economy and the stock market are currently facing – Yes Bank and Covid 19. Let’s see what they are.
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Medical experts are doing their bit to contain and combat the virus. On the other hand, regulators and Government authorities are doing their part to lessen the blow on the economy.
With the spread of coronavirus, economies are facing a slowdown and the stock markets are also volatile. Last week BSE hit the lower circuit and was shut down for 45 mins.
Recently, even the US Federal Reserve announced a rate cut. in the past few weeks, many major central banks had to use the ‘rate-cut’ tool.
A rate cut is a measure to infuse more liquidity into the economy. And that’s what is needed when businesses are shut down due to the global outbreak of Coronavirus.
While the markets were expecting a rate cut, that did not happen. In India, RBI Governor went other ways and announced a different measure to provide more liquidity.
To prevent economic damage RBI announced:
- RBI will conduct another ‘6 months US Dollar/rupee sell-buy swap on March 23
- Will conduct LTRO in multiple tranches up to a total amount of Rs. 1 lakh crore
On being asked about the rate cut, the Governor replied that the decision on that will be taken in the Monetary Policy.
UDD/INR Sell Swaps
The auction of the ‘6 months USD/INR sell-buy swap’ will be held on March 23rd. this will primarily address the liquidity issues in the economy. This will benefit the businesses and thus aid in keeping the economic damage due to Covid-19 under control.
This will control the depreciation of INR. People will also go out and invest in Indian equities and bond market. This indirectly helps in boosting investor sentiments.
Long Term Repo Operation
The RBI will conduct LTRO at current repo rates i.e. at 5.15%. That’s a joyful announcement.
This means the RBI will lend banks money in trances, up to Rs. 1 lakh crore at 5.15%. this is more infusion of funds in the economy via banks. This was also announced in the last RBI monetary policy.
On Yes Bank…
Concerning Yes bank, the governor assured the depositors that their “Money is safe”. There is no need to panic or rush to the bank to withdraw money.
The governor made the Yes bank rescue plan clearer. Eight financial institutions (7 banks, 1 housing finance institution) have come together to put in Rs.12000 crore of equity into the bank. This will allow Yes Bank to restart its operations.
More funds, more equity might be needed. To this, the RBI Governor said that the RBI will be there for the bank. ‘IF’ required, RBI will provide liquidity to support Yes Bank.
The Yes Bank moratorium is first of its kind in the country. But depositors can resume operating their bank accounts and withdraw deposits after 6 pm March 18, 2020. RBI Governor Shaktikant Das also consoled the depositors saying that they need not worry. The prime motive of RBI is to “safeguard the interest of the depositors”.
He also requested that the State and central government level authorities to continue using private banks. Private banks being a crucial part of the banking system enable financial stability.
Also Read : Yes Bank Rescue Plan : How Does It Affect You?
To Sum Up,
The proactive measures being taken by the RBI are reassuring and exactly what is required at a time like this. At this point all we can do is wait for concrete actions and announcements that would be made during the monetary policy. On a side note, while the current market scenario is hostile investors who invest regularly, systematically and for the long term have nothing much to worry about. In times like these, keep working towards your financial goals, make sure to diversify your investments across asset class and don’t stop investing!
Disclaimer: The views expressed here are of the author and do not reflect those of Groww.