RBI Assures Markets It Stands Ready To Act Amid Coronavirus Concerns
The Reserve Bank of India has joined a growing list of central banks stepping in to reassure markets amid concerns over the economic spillover of the coronavirus outbreak.
“The Reserve Bank of India is monitoring global and domestic developments closely and continuously and stands ready to take appropriate actions to ensure orderly functioning of financial markets, maintain market confidence and preserve financial stability,” the central bank said in a statement on Tuesday afternoon.
Over the last few days, central banks across the globe have assured that they stand ready to act. Finance ministers and central bank chiefs of G-7 economies are set to hold a conference call on Tuesday to discuss the policy response to the rapidly spreading virus.
The RBI said that spillovers to financial markets in India have largely been contained so far. “Growing hopes of a coordinated policy action to mitigate a broader fallout to economic activity has boosted market sentiment today,” the statement said.
On Monday, India’s Health Ministry announced two new coronavirus cases in Delhi and Telengana, taking the total number of positive cases in the country to five. Equity markets slumped on Monday but traded with gains on Tuesday. The rupee weakened to below 73 against the U.S. Dollar, the lowest in more than a year.
After the RBI’s statement on Tuesday, the yield on the 10-year government bond fell to 6.34 percent from 6.38 percent.
Volatility in global markets has prompted a reversal of flows into India. Data from the National Securities Depository Ltd. shows an outflow of Rs 5,532 crore in the first two trading days of March. The data is reported with a one-day lag and represents the previous two trading sessions.
Beyond financial market volatility, economists are uncertain about the local economic impact of the spread of the coronavirus. In a research report released earlier this week, HDFC Bank said most of the near-term impact will flow via the trade channels.
“On the domestic front, India and China are major trading partners and a sharp hit to both our exports and imports is likely,” Abheek Barua, chief economist at HDFC Bank said. “The decline in input imports such as in the pharmaceuticals, auto and electronics sectors could affect India’s domestic production downstream,” he added.