Sensex, Nifty crash nearly 8%, Federal Reserve cut not enough

MUMBAI: Investors dumped Indian stocks, sending the benchmark Sensex to the lowest level in two-and-a-half years, indicating that a series of emergency central bank actions, including the US Federal Reserve’s one percentage point cut, did little to restore confidence as the coronavirus outbreak spreads globally.

On Monday, the BSE Sensex plummeted 2,713.41 points, or 7.96%, to 31,390.07, the lowest level since 29 September 2017 . The Nifty plunged to a threeyear low, closing at 9,197.40, a decline of 7.61%.

The US Federal Reserve on Sunday slashed interest rates to near zero to blunt the impact of the outbreak that many economists say could push the world economy into recession. The Fed’s emergency 100 basis point rate cut was followed on Monday by further policy easing from the Bank of Japan in the form of a pledge to ramp up purchases of exchange-traded funds and other risky assets.

New Zealand’s central bank also shocked by cutting rates 75 basis points to 0.25%, while the Reserve Bank of Australia pumped more money into its financial system. South Korea cut rates and Russia rushed together a $4 billion anti-crisis fund.

Stocks in Japan, China, Hong Kong, Australia and Korea shed 2-10% as economists and investors interpreted US Fed move as ‘panic’.

Easing monetary policy action from central banks across the globe highlights that the pandemic’s impact is worse than was expected, according to Vinod Nair, head of research at Geojit Financial Services.

So far, the Reserve Bank of India (RBI) has not announced a rate cut, but has announced a slew of measures including ₹1 trillion long-term repo operations (LTRO) and another sixmonth US dollar sell/buy swap auction to provide liquidity to the foreign exchange market. Addressing the media, RBI governor Shaktikanta Das said, “The policy space is used appropriately and suitably timed to optimise its impact. RBI has several policy instruments at its commands and stands ready to take all necessary measures to ensure that effects of Covid-19 pandemic on the Indian economy are mitigated and financial markets and institutions in India continue to function normally.”