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London: India’s central bank governor said he’s ready to act to shield the economy from the coronavirus and reiterated there’s room to cut interest rates if needed.

Speaking in an interview with Bloomberg News in Mumbai just hours before finance ministers and central bank chiefs from the G-7 economies were scheduled to discuss policy options, Shaktikanta Das said “there is a strong reason for coordinated policy action.” For India, options include a rate cut and supporting the market through liquidity measures, he said.

Inflation, which had kept the central bank from easing since December, is expected to moderate, he said in an interview at the RBI’s headquarters. He argued the bank’s flexible inflation-targeting framework allows the central bank to look through recent price pressures and loosen policy.

“We’re ready for a response should the situation warrant,” Das said in a meeting room decorated with framed portraits of his predecessors. “I think the G-7 countries are having a conference. And going forward, in the near future, I do expect some discussion through video conference or telephone conference among the central banks of the large economies, including India.”

India’s sovereign bonds gained after the governor’s comments, with the 10-year yield dropping to 6.35% from 6.36%. Earlier Tuesday, the RBI said in a statement it’s ready to act to calm market volatility, although so far the spillover to the nation’s stocks and bonds have been relatively contained.

Das’s counterparts in Australia and Malaysia lowered interest rates on Tuesday, while Indonesia said its working on a second stimulus package. The Federal Reserve signaled a possible rate cut last week, while monetary authorities in Japan and the U.K. pledged action to stabilize markets — a throwback to the coordinated action in the aftermath of the global financial crisis more than a decade ago.

“We, G-7 Finance Ministers and Central Bank Governors, are closely monitoring the spread of the coronavirus disease 2019 (COVID-19) and its impact on markets and economic conditions,” the G-7’s finance ministers and central bankers said Tuesday in a statement published after Das spoke with Bloomberg News.

Also read: RBI says it’s ready to act to calm markets amid coronavirus disruption

“There is definitely a strong reason for coordinated policy action, because coronavirus has now turned out to be a global problem,” Das said. “So when the problem is global, naturally the response and the need for coordinated action is so much more.”

Das also addressed lingering concerns about the nation’s shadow banks, saying only about four firms required active monitoring now and the sector no longer posed a risk to financial stability.

The RBI cut interest rates five times in 2019 to support an economy headed for its weakest expansion in 11 years, but has been on pause since December following a spike in inflation, which accelerated again to 7.6% in January — well above the central bank’s 2%-6% target. Data on Friday showed growth decelerated to 4.7% in the three months through December from a year ago, the third straight quarterly slowdown.

Das said the virus’s impact on India will come through two channels: trade with China and weaker global growth. The RBI would be able to quantify the hit to growth at its next policy meeting in April, he said

With only five confirmed coronavirus cases as of March 2, India has been relatively insulated from the outbreak. However, the economy probably won’t be, since India depends on China for more than one-fifth of its total non-oil, non-gold goods imports.

Indian businesses aren’t currently facing any problem in securing supplies of raw materials, but there may be issues if the shutdowns in China continue for longer, Finance Minister Nirmala Sitharaman said last week. The government is ready to respond with measures, she had said separately.

“Everyone likes a rate cut,” Das said when asked if a coordinated response from global peers would lead to market pressure on him to also move. “We will do what we think is right.” –Bloomberg

Also read: RBI doesn’t have much room to cut interest rates anymore, Goldman Sachs says

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