Reserve Bank of India (RBI) Governor Shaktikanta Das said deposits in YES Bank were safe, after announcing long-term repo operations (LTRO) of Rs 1 trillion to infuse liquidity in the banking system and, of another round of dollar sell-buy swaps to address the currency's shortage. Bond yields had fallen sharply in the day, reacting to the hastily called press conference by the Indian central bank after its American counterpart lowered its policy rate to zero.
The expectation was that RBI, too, would announce a rate cut, besides other measures by banks to ease the pain of businesses witnessing a slowdown due to COVID-19. Nothing of that sort happened. Ten-year bond yields had dipped to 6.12 per cent around 1 pm, from the previous close of 6.32 per cent. These climbed to close the day at 6.21 per cent, as no rate cut came.
Das said the RBI had enough instruments for use if needed — they would be deployed at a time that would maximise impact. He also indicated the next rate cut might not come before the first week of April, when the Monetary Policy Committee is to meet. An out-of-turn meet is possible, though. Rather, the governor and his deputies took the opportunity to allay worries on YES Bank. The moratorium placed on withdrawal of deposits from the stricken lender gets lifted at 6 pm on Wednesday. The governor requested depositors not to be in a hurry to withdraw, as “never in the history of banks (in India) have depositors lost their money. The point is, depositors’ money is absolutely safe.”
SBI Chairman Rajnish Kumar said the statements on YES Bank by the RBI governor will "reassure the markets further", while the additional liquidity through LTRO and swap transactions "will ensure the twin objectives of further compression in term structure of interest rates and ensuring dollar liquidity."
On the impact of COVID-19 , Das said India, while not immune, is not directly linked to the global supply chain that has got hit the most. RBI, he said, is in the process of ascertaining the impact the virus could have on the economy. He said they’d been taking “calibrated measures” to boost confidence, with the markets having indicated liquidity was comfortable. Banks have been asked to encourage more of digital payments as ‘social distancing’ becomes the norm. While the RBI has “several policy instruments at its command and stands ready to use them”, such a response can “neither be premature, nor delayed”, so that optimum impact is achieved, the governor said. “I don’t rule out anything. Depending on the evolving situation, RBI will take appropriate action,” the governor said.
Central bank injects dollars
ON Monday, the Reserve Bank (RBI) conducted $2-billion in sell-buy swaps to increase availability of dollars in the market. The total of 19 bids received amounted to $4.67 bn, while the cut-off premium was 156 p. It will conduct another swap of $2 bn on the coming Monday, Das said. The RBI will also be infusing Rs 1 trillion of liquidity in the system through long-term repo operations (LTRO), the first tranche of which would be on Wednesday for Rs 25,000 crore. The duration of the LTRO will be three years.