The Indian rupee is mixed to kick off the trading week as investors weigh last month’s decision to slash interest rates and pump billions of dollars of liquidity into the economy. As the developing market contends with the coronavirus global pandemic that has shut down the country for three weeks, officials are adopting a “whatever it takes” approach to monetary and fiscal policy.
The Reserve Bank of India (RBI) released the minutes from its March policy meeting, which consisted of imposing a 75-basis-point emergency cut and lowering the benchmark rate to 4.40%. The last time interest rates were this low was at the height of the Great Recession.
Officials also injected $50 billion of liquidity into the financial system to encourage local banks to lend to borrowers and manage volatility in forex markets. The plan further permits financial institutions to trade non-deliverable forwards, which is a currency derivative that critics say facilitates speculation.
RBI Governor Shaktikanta Das told the Monetary Policy Committee (MPC) that the central bank will need to take all necessary steps to fight the economic fallout of the coronavirus. Since a global downturn will inevitably impact India, Das conceded that the RBI must employ every conventional and unconventional stimulus tool to mitigate COVID-19’s negative effects.
According to the minutes, Das believed the fundamentals of the economy are sound, alluding to data from before the virus outbreak. Official data revealed that manufacturing, railway freight traffic, and imports and exports improved in January and February following several months of contraction or sluggish growth.
The Reserve Bank will continue to remain vigilant and will not hesitate to use any instrument – conventional and unconventional – to mitigate the impact of Covid-19, revive growth and preserve financial stability.
Other members, however, thought that the rate cut was too steep. Chetan Ghate and Pami Dua called for a 50-basis-point reduction to interest rates.
On the data front, foreign exchange reserves tumbled about $1 billion to $474.66 billion in the week ending April 3. Bank loan growth surged 6.1% year-over-year in March, while deposit growth advanced 7.9% last month. The inflation rate grew at an annualized rate of 5.91% in March.
The USD/INR currency pair rose 0.13% to 76.28, from an opening of 76.08, at 17:48 GMT on Monday. The EUR/INR dipped 0.07% to 83.26, from an opening of 83.32.