New Delhi, April 8 || 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.