Views of Ms. Anagha Deodhar – Chief Economist,
ICICI Securities on the RBI Monetary policy
As expected, the MPC voted unanimously to keep repo rate unchanged and the stance of monetary policy ‘accommodative as long as necessary’. The decision to hold rates came on the back of a difficult backdrop of slowing growth are rising inflation. The MPC upped inflation forecast for better part of FY22 by 20-30bps and lowered GDP growth forecast sharply to 9.5%, mainly due to lower than expected growth in H1FY22. This shows that the committee’s priority is supporting growth recovery. The RBI also announced on-tap liquidity window of Rs 150bn for contact-intensive sectors, additional liquidity facility of Rs 160bn to SIDBI and enhanced the threshold for resolution. Moreover, it announced purchase of government securities worth Rs 1.2trn under GSAP 2.0 in Q2FY22. All these measures together are likely to keep financial conditions in the economy benign and support recovery.
Client: Muthoot Finance
“RBI left the policy rates unchanged for sixth straight time and has avowed to continue accommodative stance as long as necessary to revive growth and help sustain it on a durable basis. This commitment by the central bank was supported by additional measures announced today such as a separate liquidity window of Rs. 15,000 crore for certain contact-intensive sectors and enhancing exposure threshold to Rs. 50 crore from Rs. 25 crore for MSMEs, small businesses and individuals for business loan purposes under Resolution Framework 2.0. Such steps will help borrowers to better mitigate the impact of pandemic’s second wave and we stand resolutely with every Indian to support all finance needs for a truly Atmanirbhar Bharat.”
Views of Indranil Pan, Chief Economist - YES BANK on the RBI Monetary policy
As was expected, there were no change in the headline monetary policy rates as also the stance. In his statement, the Governor acknowledges the growth risks and now projects a lower real GDP growth for the year at 9.5%. Inflation projections have been raised too. Given the current evolution of the growth-inflation dynamics, there was absolutely no scope for the RBI to change its policy rates. Instead, the RBI endeavoured to keep the system fluid with adequate liquidity and also targeting rescue operations for the most stressed sectors in the economy. Consequently, a liquidity window was opened up for the contact intensive sectors that continue to totter with the burden of the pandemic. SIDBI was provided with a special liquidity facility to on-lend to MSMEs, specially the smaller ones. To enable the government to borrow at attractive rates, another round of bond buying was announced under G-SAP 1.0 while a G-SAP 2.0 was announced. We think that over the current FY, the RBI will not have any leeway to change its interest rates to provide support to the economy. Instead, it will do whatever necessary to push credit and liquidity to the stressed areas of the economy so as to prevent erosion of the supply chains in the economy.
Client: Bank of India
Policy a fine balancing act between growth and inflationary expectations
Policy yet again proved to be a fine balancing act between growth and inflationary expectations. Expanding the scope of Covid 2.0 resolution framework coupled with the recent ECLGS modification is a welcome move to support the needy segments.
Shri A. K. Das, Managing Director & CEO, Bank of India
Client: Shriram Transport Finance
RBI’s monetary policy today was along expected lines with status quo on rates and continued accommodative stance. While the central bank acknowledged that the spread of Covid-19’s second wave into rural areas had brought forth downside risks and a slight reduction in GDP estimates for the year, the forecast of a normal monsoon bodes well for pickup in demand indicators going ahead. In continuation of a slew of measures taken by RBI since the start of the pandemic to better mitigate its impact on businesses & economy, there were additional ones announced today such as a separate liquidity window of Rs. 15,000 crore for certain contact-intensive sectors like supply chain, private bus operators, rent-a-car service providers, vehicle repair services among others. Such steps will keep liquidity abundant and financing conditions congenial necessary for preserving financial stability of all stakeholders.
“RBI continues to maintain an accommodative stance as it is crucial to mitigate the impact of COVID Pandemic. Focus on equitable distribution of liquidity is expected to solve the fund shortage crisis to an extent. Modifying the ECLGS scheme and clear instructions to banks & other financial institutions on sanctioning funds to labour intensive sectors like Real Estate is the need of the hour. Moratorium on principal & interest for 6 months and freezing of SMA classification for another year will aid revival of businesses and thus the economy. The impact of the second wave on large businesses which provide millions of livelihoods is a lot deeper than it appears. MSMEs are staying afloat with the much needed support from the Government. Growing retail inflation coupled with increasing unemployment rates call for immediate & drastic measure from the Central bank.”