RBI expected to cut rates soon to soothe markets

As the spread of coronavirus infection continues to shiver investor sentiments across the globe and with the US Federal Reserve having reduced policy rates by 50 basis points (bps) on Tuesday, the Reserve Bank of India is also expected to follow suit and announce rate cut in the coming days, probably by the end of this week, HDFC Bank`s Chief Economist Abheek Barua said.

"I suspect that over the next few days we will see some kind of response from the RBI, whether it is tomorrow itself or not is an open question. The only thing that the RBI has to watch out for is by doing this is whether it would send a signal that things are really collapsing and there is a need for emergency," Barua told IANS.

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"I think RBI Governor (Shaktikanta) Das will go with rest of the central banks and if not tomorrow, over the next few days... if other banks were to cut, I think RBI will also follow."

The Reserve Bank of India on Tuesday said that it is ready to take "appropriate actions" to ensure the orderly functioning of financial markets.

In a statement, the RBI said: "The Reserve Bank of India is monitoring global and domestic developments closely and continuously and stands ready to take appropriate actions to ensure the orderly functioning of financial markets, maintain market confidence and preserve financial stability."

Expectations of the Reserve Bank going ahead with an emergency rate cut have increased against the backdrop of the US Federal Reserve having slashed US benchmark policy rates by 50 basis points on Tuesday.

It is the first unscheduled, emergency rate cut since the global financial crisis of 2008 and comes as novel coronavirus has hit the US too, killing six. The US benchmark policy rates now stands at 1 per cent to 1.25 per cent.

The Federal Reserve`s move comes after global markets logged their worst week since the 2008 global financial crisis and saw the US main index, Dow Jones falling over 1,000 points multiple times.