PANIC STREET – FEAR STALKS BIG TIME

The sheer speed at which the markets fell today left everyone shocked and numb. And in that light, the IIP data for January and the retail inflation for February due today evening seems so outdated.

These data are used by the central banks and the NITI Aayog to formulate policies and take the country ahead. But with the Covid-19 striking a fatal blow, none of this data holds any relevance – all think tanks are looking at how to mitigate the impact of this health crisis.

As such we were on a slowdown and now the virus has infected the gut even more badly. The virus as we all hope might disappear as the intense summer heat beats down upon us but till then, the damage done is pretty huge.

World over the central banks have got into a rescue mode. The US Fed announced a surprisingly generous 50 bps rate cut. Bank of England also announced a 25 bps rate cut and yesterday, Bank of Canada also did the same.

Its not a question of yes or no; the question is when and how much the RBI will cut rates. There is no doubt that rate cuts will come; but more than a rate cut, a tax cut is what will help. People are not willing to buy so a rate cut will not change that psyche but if the money in the hands of the people gets saved more than before, that is something which will help.

When the 2008 crisis happened, the central banks had enough room to cut rates; this time around that arsenal is almost empty. We all can expect the Govt to step in and announce more stimulus to shore up the sentiments and reduce the impact of the virus. Given the carnage on Dalal Street, it could happen earlier than later. A collective action of fiscal and monetary stimuli is what the doctor has ordered urgently for this virus – that’s the only way we can build an immunity.

We need a war chest of stimuli. Rate cuts will not help as the entire banking sector itself looks fragile in the light of the Yes Bank debacle. Tomorrow is Friday and we hope the Govt announces something to placate this panic and give a sense of it being in control.