RBIannouncementstocountertheVirusthreattoeconomy

“There are decades when nothing happens and there are weeks when decades happen.” This is what Lenin said in the wake of Bolsheviks overpowering the Tsarist regime in Russia as the revolution was on the cards and the old order was crumbling. The current week though is not going to bring about the revolution but the changes it has brought are revolutionary to say the least.

After the Fed bazooka last week followed by the 2 trillion USD stimulus package by the US senate, 1.7 lac crore fiscal measure for the poor by the Indian central govt yesterday today was the day of announcement by the RBI. RBI preponed the MPC meeting which was supposed to take place in the first week of April. Below are the moot points which came out of the RBI press conference.

Repo rate cut by 75 bps to 4.4% Reverse Repo rate cut by 90 bps at 4% which is like widening the corridor CRR was cut by 100 bps to 3% of NDTL for period of 1 year. Minimum daily maintenance reduced to 80% from 90% for period till June. These measures are expected to inject close to 374000 Crore in the system. NSFR implementation was delayed by 6 months Moratorium on term loans was announced where all lending institutions are allowed to have moratorium of 3 months with respect to term loans Indian banks IFSCs allowed to trade in the non deliverable market starting June 2020. Deferment of interest on Working capital loans for 3 months, accumulated payment will be done after this period. RBI will conduct auctions of TLTROs upto three year tenor of appropriate size for total amount of 1 lakh crore at a floating rate, linked to policy rate. Liquidity under this scheme will have to deployed in commercial papers, investment grade corporate bonds and NCDs.

Consequent to the announcement of al these measures there was expected turbulence in the Indian markets. The rupee gyrated in a 30 paise range from 74.70 to 74.35. The forwards moved lower even after opening low compared to yesterday’s levels. The 10 year Gsec yield touched the level of 6% in the trade before coming back to 6.08 as of now.