Indian authorities are considering allowing corporate bonds as collateral for repurchase operations as they seek to cool the recent spike in corporate borrowing costs in the wake of the coronavirus outbreak.
“We have to work it out. Under the RBI Act, we are not allowed to take any other collateral other than government securities. But we are not looking upon that as an impediment,” a senior official source with knowledge of the matter said.
“We will look at ways in which we can directly reach the corporates. We’re saying just give us time to work our way through these regulations and all, but we are indeed looking at directly helping them out,” he added.
The Indian authorities handling the matter, the Finance Ministry and Reserve Bank of India, both declined to comment on the story.
India has confirmed more than 350 cases of coronavirus, with seven deaths so far. Experts have said the number of cases reflect rates during the early stages of the outbreak in other countries, which then spiked sharply in subsequent weeks.
Dozens of districts across India have been put under lockdowns with train and bus services suspended in most places, causing panic among investors and sparking sell-offs in bonds, equities and the rupee, which hit fresh lifetime-low early on Monday.
European stock markets are expected to edge lower Thursday, with investors still contemplating the possibility of several months of declining economic activity despite an increasingly robust policy response that reached a new high late on Wednesday as the European Central Bank unveiled its biggest anti-crisis program yet.
The European Central Bank launched a 750 billion euro ($820 billion) emergency bond purchase scheme after an unscheduled meeting Wednesday. It will buy government and company debt across the eurozone, including that of troubled Greece and Italy.
This announcement came after the bank’s 25-member governing council held emergency talks by phone late into Wednesday evening.
The move follows an unprecedented and large step up in global co-ordination by central banks, governments and regulators since the start of this week to cushion the economic impact of the coronavirus.
The U.S. Federal Reserve on Sunday slashed key rates by 100 basis points, boosted asset purchases and has flushed the system with liquidity. While the U.S. Senate on Wednesday passed legislation providing more than $100 billion to confront the growing coronavirus outbreak.
Earlier Thursday, the Reserve Bank of Australia dropped its key rate to 0.25%, a record low, and the second cut this month. It also announced its first-ever quantitative easing program.
Yet, it’s debatable how long these gains will last as the coronavirus outbreak has inflicted huge damage on the world economy, Bank of Japan Deputy Governor Masayoshi Amamiya said on Thursday, and the impact is likely to last for some time.
Airlines will be in focus Thursday, after Deutsche Lufthansa added its voice to the chorus saying the industry may not survive without state aid if the coronavirus pandemic lasts for a long time.
Economic indicators are thin on the ground in Europe Thursday, while oil markets have seen some small gains after three days of relentless selling.
Panic buying by British shoppers escalated on Wednesday with shelves stripped bare by alarmed customers hoarding for the coronavirus isolation, prompting Tesco and Sainsbury’s to restrict purchases.
Prime Minister Boris Johnson, who has faced criticism for acting too slowly and too cautiously to tackle the coronavirus outbreak, said on Tuesday that there was no reason to stockpile and that food supplies were safe.
In supermarkets across the land, though, shoppers were spooked. Aisle after aisle were left empty with just ice cream and chocolate Easter eggs remaining at many major stores. Huge queues snaked around some supermarkets on Wednesday, Reuters reporters said.
Sainsbury’s is to restrict customer purchases to combat panic buying. Tesco is allowing shoppers to purchase just two packs of certain items such as dried pasta, toilet roll and long life milk.
Britain’s big grocers, including market leader Tesco, Sainsbury’s, Asda, and Morrisons, along with discounters Aldi and Lidl, have struggled for over a week to keep shelves stocked.
Aldi on Monday became the first UK grocer to introduce rationing, limiting customers to buying four items of any one product during each visit.
Morrisons cautioned it was facing extraordinary times.
“We are currently facing unprecedented challenges and uncertainty dealing with COVID-19,” the company’s chairman Andrew Higginson, and its CEO David Potts said.
The supermarket industry says it is working closely with suppliers to keep food moving through the system and is making more deliveries to stores to get shelves re-stocked.
It says supplies are still coming in from Europe, despite lock-downs in Italy, Spain and France.
One executive said the government was only just starting to understand the enormity of the crisis for the industry.
“They’re in asking questions mode, they’re certainly not in telling us anything mode. They’re trying to understand what we’re seeing rather than telling us to do anything specific.”
The second source added: “Government are asking questions, listening and planning, but we’d appreciate a bit more help to get things moving.”
The source said the government could help by lifting restrictions on driver hours and relaxing Groceries Supply Code of Practice (GSCOP) regulations which slow the industry down.
For years, Hindus and Muslims lived and worked peacefully together in Yamuna Vihar, a densely populated Delhi district.
But the riots that raged through the district last month appear to have cleaved lasting divisions in the community, reflecting a nationwide trend as tensions over the Hindu nationalist agenda of Prime Minister Narendra Modi boil over.
Many Hindus in Yamuna Vihar, a sprawl of residential blocks and shops dotted with mosques and Hindu temples, and in other riot-hit districts of northeast Delhi, say they are boycotting merchants and refusing to hire workers from the Muslim community. Muslims say they are scrambling to find jobs at a time when the coronavirus pandemic has heightened pressure on India’s economy.
The trigger for the riots, the worst sectarian violence in the Indian capital in decades, was a citizenship law introduced last year that critics say marginalises India’s Muslim minority. Police records show at least 53 people, mostly Muslims, were killed and more than 200 were injured.
Dhingra said the unrest had forever changed Yamuna Vihar. Gutted homes with broken doors can be seen across the neighbourhood; electricity cables melted in the fires dangle dangerously above alleys strewn with stones and bricks used as makeshift weapons in the riots.
Mohammed Taslim, a Muslim who operated a business selling shoes from a shop owned by a Hindu in Bhajanpura, one of the neighbourhoods affected by the riots, said his inventory was destroyed by a Hindu mob.
Many Muslims said the attack had been instigated by hardline Hindus to counter protests involving tens of thousands of people across India against the new citizenship law.
Emboldened by Modi’s landslide electoral victory in 2014, hardline groups began pursuing a Hindu-first agenda that has come at the expense of the country’s Muslim minority.
Vigilantes have attacked and killed a number of Muslims involved in transporting cows, which are seen as holy animals by Hindus, to slaughterhouses in recent years. The government has also adopted a tough stance with regard to Pakistan, and in August withdrew semi-autonomous privileges for Jammu and Kashmir, India’s only Muslim-majority state.
Emerging signs of a rush for dollars in the global financial system have spurred calls for the world’s central banks to use a key tool deployed during the credit crisis more than a decade ago: currency swap lines.
The Bloomberg Dollar Spot Index climbed more than 1% for the second time this week on Thursday, reaching a three-year high. The Japanese yen, so often a haven in times of stress, closed little changed despite the biggest stock slide on Wall Street since the 1987 crash. Emerging-market currencies including South Korea’s won and Mexico’s peso have tumbled this week, evidence that foreign investors are yanking money and scrambling into the greenback.
Gauges of dollar demand for traders have shown rapidly mounting strains. While central banks including the Federal Reserve and Bank of Japan have been injecting liquidity into domestic money markets, they have yet to tap into swap lines that were set up more than a decade ago to avoid a paralyzing shortage of the world’s main reserve currency.
“Additional liquidity measures will likely be needed,” Evercore ISI analysts Krishna Guha and Ernie Tedeschi wrote in a note Thursday, after the U.S. central bank ramped up the amount of cash it’s prepared to inject into funding markets. Further action could address the “distribution of dollars globally as companies hit by cash-flow interruptions look to draw down dollar credit lines.”
The swap lines were set up in 2007, terminated in 2010 and then revived as the euro crisis emerged later that same year. In 2013, the Fed made the arrangements with five developed-nation counterparts a standing facility. Given that they involve the provision of currency to foreign agents, the lines have faced political opposition: Some in the U.S. Congress criticized the Fed for extending dollars to foreign entities in the past.
One option is for countries outside the U.S. to draw down their foreign-exchange reserves. But that could quickly turn into a race among traders to see how much of those stockpiles officials would be willing to run down. The Fed swap lines provide the easiest solution, because they have no pre-set limit.