How much firepower does RBI have to save Indian economy from coronavirus? Here's a clue

Amid widespread fears of coronavirus potentially nearing a pandemic phase, Federal Reserve chairman Jerome Powell underlined the limited impact of monetary action in times like these.
"A rate cut will not reduce the rate of infection — it won't fix a broken supply chain," Powell said yesterday after the Fed effected an unanticipated 50-bps rate cut in an attempt to calm frayed nerves.

The threat to the global economy right now is a disruption of supply chains. It has impacted manufacturing to a large extent and led to a supply shock.

On Tuesday, the Reserve Bank of India hinted that there is room to cut rates in the forthcoming policy review next month even as high inflation has put the RBI's Monetary Policy Committee in a wait-and-watch mode.

Retail inflation for the month of January climbed up to reach 7.59 per cent, above the RBI's upper end of the inflation spectrum.

The RBI, which cut the repo rate by 135 basis points last year to fight a sliding economic growth, has had to face with issues of monetary transmission as well. To ensure better transmission of rate cuts, it has directed banks to link their loan rates with external benchmarks.

Experts have pointed to the limited arsenal available with central banks in tackling the economic fallout of coronavirus.

"While the US Fed has cut rates and other central banks have shown a strong resolve to act, my sense is that monetary policy has almost run its course,” a report in today's Economic Times quoted Navneet Munot, CIO, SBI MF, as saying.

The RBI, in a note on Tuesday, said that it is monitoring the situation and will take all measures needed to support the financial markets.

The government had already cut corporate taxes last year to provide stimulus to industry. Experts have pointed out that further easing of norms can help India replace China as manufacturers are looking to shift base due to trade tensions and coronavirus outbreak.