The swift shift in global sentiment, high market volatility and fear of recession amid the US tariff shock indicate a 25bps cut by the Reserve Bank of India (RBI) on April 9
NEW DELHI — The swift shift in global sentiment, high market volatility and
fear of recession amid the US tariff shock indicate a 25bps cut by the Reserve
Bank of India (RBI) on April 9, with possible change in stance to
“accommodative" to give directional easing bias, a report showed on
Tuesday.
The Central Bank began its three-day Monetary Policy
Committee (MPC) meeting on Monday.
“The extent to which this global trade war could stretch is
unclear. Monetary policy may have to do the heavy lifting in India by being
more countercyclical than fiscal this year. Implications for India could stem
from both, global financial market disruptions and real sector hit,” said Emkay
Global Financial Services in the note.
While there is scope for negotiation and de-escalation, “we
think this could be a pivotal turning point for emerging markets (EMs) assets
in coming months”.
However, the RBI may not want to use all the ammunition too
soon, given fluid global markets, and may thus not frontload cuts in April.
“Options like non-conventional easing in the form of easier
regulatory (lending) norms, lower daily CRR requirement for banks to sub 90 per
cent, sterilised INR management, etc may be used, if needed,” the report noted.
Near-term, however, there may be some overhaul of the
liquidity framework in favour of daily variable rate repo (VRRs) instead of
14-day VRR, as the primary tool for easier asset liability management (ALM) and
liquidity management for banks.
According to the report, the fluid global dynamics will
require the RBI to be nimble in managing any risk of tighter financial
conditions, “especially as the shock to sentiment/capital flows is likely to
require higher risk premia from EMs”.
While the extent of trade war pain is unclear, monetary
policy may have to do the heavy lifting in India, it added.
According to Ankita Pathak, Macro Strategist and Global
Equities Fund Advisor at Ionic Asset by Angel One, the RBI is likely to cut
rates by 25bps tomorrow, with an expectation of a change in stance to
accommodative from the current neutral.
“India is relatively better than the rest of Asia as far as
tariffs are concerned, but it is unlikely that it will not see any ripple
effect from a global slowdown. China’s response to Trump’s tariffs will be
important for Asian central banks (including the Indian RBI) and will chart the
course for both currency and rates,” Pathak mentioned.
India has needed monetary reflation even before Trump’s
tariffs, and the need for it to support growth, as well as the ability to do
so, is now the strongest. It must, therefore, flow through both rate cuts and
surplus liquidity maintenance, she said.
