Advertisement

  • News
  • Columns
  • Interviews
  • BW Communities
  • Events
  • BW TV
  • Subscribe to Print
  • Editorial Calendar 19-20
BW Businessworld

MPC Stance On Economy On Expected Lines: Experts

RBI kept the repo rate unchanged at 4 per cent in the announcement on Friday. The economy has been projected to grow at 9.5 per cent in FY21-22.

Photo Credit :

1587980219_G8jX65_2020_04_27T092711Z_2_LYNXNPEG3Q0J2_RTROPTP_3_INDIA_ECONOMY_RATES.JPG

Monetary Policy Committee (MPC) of the Reserve Bank of India, on Friday, unanimously kept the repo rate unchanged at 4 per cent. The bank also retained the accommodative stance.

The reverse repo rate was also kept unchanged at 3.35 per cent and the marginal standing facility was also kept unchanged at 4.25 per cent. “The stance remains accommodative as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy while ensuring that inflation remains within the target going forward”, RBI governor Shaktikanta Das said during the announcement.

However, the situation of inflation remains tricky. Due to higher global crude oil and other commodity prices along with a shortage in supplies of raw materials including coal and microchips, inflation is expected to remain high. CPI inflation is expected to be 5.3 per cent in August, according to the RBI.

Apart from this, the real GDP growth has been projected at 9.5 per cent in 2021-22.

Experts believe the decision was as expected

Indranil Pan, Chief Economist, YES Bank said, “The RBI was clear about the fact that it would be careful of not rocking the boat in any way. RBI Governor went to the extent of pointing out that we are close to the shore but there is a life beyond the shore too. RBI walked the talk with its actions by not changing the policy rates – both the repo as also the reverse repo rates.” The rates have been kept unchanged by the bank. 

Pan continued, “In my opinion, the glide path has been initiated with the G-sec bond-buying programme dialed back to NIL, and the Variable Reverse Rate Repo (VRRR) auction size enhanced to INR 6 trillion by early December. The RBI also has opened itself up to increasing the VRRR duration to 28 days if need be. The actions on liquidity are expected to bring up the overnight money market rates to above the current reverse repo rate of 3.35 per cent and we think that RBI will then be open to adjusting the Reverse repo rate to reduce the size of the corridor.”

On the development, Chief Economist of HDFC Bank, Abheek Barua said, “In line with our expectations, the RBI kept its monetary stance accommodative, keeping rates unchanged in its monetary policy announcement today. The RBI adopted a calibrated and patient approach towards managing liquidity and monetary policy support, recognizing that there are still some downside risks to growth.” He also said that they expect the upside to be capped by RBI intervention through OMOs and Operation twists if they move above comfortable levels.

According to Tirthankar Dutta, Partner, JSA, the development was on the expected lines. Dutta said, “As expected by market participants the RBI has retained the accommodative stance by not increasing the repo rate. While the RBI acknowledged the liquidity overhang, it also allayed fears that the liquidity measures will remain to support growth by extending the On Tap Special Long Term Repo Operations (SLTRO) for Small Finance Banks till December 31, 2021.”

RBI also announced that given the increased reach of NBFCs, an ombudsman for NBFCs will be implemented for strengthening grievance redressal.

Anagha Deodar, Chief Economist, ICICI Securities also agreed that the decision was on the expected lines. She also talked about the decision of the bank to extend SLTRO for small finance banks till December 2021. “While it retained growth forecast for FY22 at 9.5 per cent, it added that the external environment is turning more uncertain and challenging. On the regulatory front, the RBI extended SLTRO for small finance banks till Dec 2021, decided to continue with extended WMA limit till Mar 2022, and extended inclusion of on-lending to NBFCs in priority sector till Mar 2022”, Deodar said. 

The RBI had earlier revised its policy repo rate in May 2021 to cut the interest rates to boost the demand. The latest development is expected to provide the economy, the benefit of rising demand in the upcoming festive season.