India: Modi explores spending boost to contain coronavirus fallout

  • India’s central bank pledged to use its record USD481bn foreign-currency arsenal to stem a market rout that’s threatening growth in an already-slowing economy.
  • The Reserve Bank of India wants to keep the rupee stable and will continue using long-term repurchase operations and other liquidity tools at its disposal, according to an official, who asked not to be identified in line with the bank’s rules.
  • The RBI announced a USD2bn injection into the foreign-exchange market on 12 Mar 20 to support the rupee and followed 13 Mar 20 with a plan to add liquidity through short-term repurchase operations.
  • The assurances came a day before wild swings in Asian global markets on 13 Mar 20, with the rupee plunging to a record low and trading in Indian equities halted for 45 minutes after the main indexes plunged 10%. The currency and stocks later pared losses.
  • Market speculation had been growing for an off-cycle RBI interest-rate cut, but the official ruled out a move before the next scheduled decision 3 Apr 20.
  • The collapse of Yes Bank is weighing on the nation’s growth outlook as credit markets dry up. It’s likely to snuff out any hopes of a quick recovery in India’s shadow lending sector, which has been struggling for the past 18 months.
  • Prime Minister Narendra Modi’s office also is exploring the need for higher spending to prop up growth, according to people familiar with the discussions.
  • Authorities estimate the virus will shave about 30bsp off India’s growth target of 6%-6.5% for the FY20-21.

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