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More monetary measures seen after India extends lockdown

(ATF) India extended its nationwide coronavirus lockdown until May 3 in its battle against the coronavirus pandemic, delivering a bigger hit to Asia’s third biggest economy and lifting expectations of more easing measures.

“Friends, keeping all the suggestions in mind, it has been decided that the lockdown in India will have to be extended till the 3rd of May. That means until May 3rd, each and every one of us, will have to remain in the lockdown. During this time, we must continue maintaining discipline in the way we have been doing till now,” India’s Prime Minister Narendra Modi said in his address to the nation today.

That will keep most of the country’s 1.3 billion people indoors, hurting consumption, dislocating transport and further damaging investment by reducing India’s economic growth.

While India’s infection count at 10,541 and death toll at 358 is low compared to other countries, there are fears the numbers are understated due to low levels of testing. But the extension of the lockdown was seen inevitable as the country’s massive, densely populated slum areas are vulnerable to a rapid spread of the disease at a time when it is spreading fast in other parts of the world.

Forecasts downgraded

The World Bank has downgraded India’s growth forecast to 1.5%-2.8% as a result of the pandemic and Barclays said there would be zero growth in 2020.

Barclays analysts Rahul Bajoria and Shreya Sodhani said the negative impact of the shutdown measures on the mining, agriculture, manufacturing and utility sectors was higher than expected. They estimated an economic loss of $234.4 billion, higher than the earlier expectation of $120 billion.

They slashed their GDP growth forecast further to 0.0% for calendar year 2020 from 2.5%, and to 0.8% for the 2020-21 financial year from 3.5%.

This compares with the 6.5% growth forecast by the government at its annual budget in February.

“High-frequency indicators show that economic activity has slumped, leaving millions of households without adequate social security or savings buffers highly vulnerable,” Shilan Shah, Senior India Economist at Capital Economics, said.

India’s consumption sector, which has been the lynchpin of growth, has been impacted the most, with discretionary demand hurting the most, said Edelweiss Securities Lead Economist Madhavi Arora.

She said the fiscal measures announced so far had been modest, with little coverage for the medium and small sector enterprises, and that the informal sector would need direct policy support.

More fiscal stimulus expected

“We expect another round of fiscal stimulus, focused on small businesses and sector specific assistance. The Reserve Bank of India (RBI) will continue to do its bit. We expect another 50bp reduction in the policy repo rate, on or before their June meeting,” ANZ economists Rini Sen and Sanjay Mathur said.

Others expect more aggressive measures even as the RBI meeting minutes published on Monday showed the central bank prioritised containing risks to the growth outlook and preserving financial stability.

“From the central bank’s conventional toolkit front, further policy-rate cuts to the tune of 75bps+, a further cut in CRR, additional OMOs and some relaxation on the LCR front could be on the anvil,” Edelweiss’ Arora said.

“The RBI, with coordination and equity funding by the government, may also create an special purpose vehicle which could focus on purchasing corporate bonds to further alleviate credit market stress, deepen liquidity and improve price discovery across all segments of the corporate bond market.”

Umesh Desai

Umesh Desai is the Executive Editor at Asia Financial. Prior to this he spent over two decades with Reuters News as Asia Pacific Chief Correspondent in Hong Kong and Bureau Chief in Bombay. Before becoming a journalist Umesh was a credit ratings analyst with Moody's arm in India - ICRA. A chartered accountant by training, Umesh began his career as an equity analyst. His Twitter handle is @umesh_desai


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