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RBI Monetary Policy | Reactions From Industry Experts

Das said MPC voted unanimously for keeping the interest rate unchanged and decided to continue with its accommodative stance as long as necessary to support growth and keep inflation within the target.

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After the Union Budget 2022-23, the Reserve Bank of India (RBI) on Thursday kept the benchmark interest rate unchanged at 4 per cent and decided to continue with its accommodative stance in the backdrop of an elevated level of inflation

While announcing the bi-monthly monetary policy review, RBI Governor Shaktikanta Das said that MPC has decided to keep the benchmark repurchase (repo) rate at 4 per cent. Consequently, the reverse repo rate will continue to earn 3.35 per cent interest for banks for their deposits kept with RBI.

Das said MPC voted unanimously for keeping the interest rate unchanged and decided to continue with its accommodative stance as long as necessary to support growth and keep inflation within the target.

RBI retained its growth projection at 9.2 per cent and inflation at 5.3 per cent for the current financial year. Retail inflation rose to a five-month high of 5.59 per cent in December from 4.91 per cent in November, mainly due to an uptick in food prices.

Here is how the industry experts reacted to the announcement made by RBI Governor Shaktikanta Das. Edited excerpts:

Prasenjit K. Basu – Chief Economist, ICICI Securities said, "Given global headwinds and the prospect of a gradual moderation of India’s CPI inflation, it is eminently sensible to persist with the accommodative stance. A key reason to keep the policy interest rate at historic lows longer is to spur a more durable rebound in private consumption. India did not massively boost monetary growth during the worst phase of the pandemic (as the US Fed, ECB and BoE did), so there is less need for the RBI to roll back monetary accommodation this year. As the strong rabi crop boosts food supply in April-June, and other supply disruptions from the third wave of the pandemic recede, India’s CPI inflation will moderate, allowing policy rates to remain low for longer than in the developed world. That will provide a boost to equity valuations, and help spur a broad-based recovery in consumption and investment."

Indranil Pan - Chief Economist, Yes Bank said, "The RBI has provided the market with a very dovish policy –more so than expected by the market. Growth concerns continue to play a bigger role than inflation for RBI. In terms of its forecasts on inflation, RBI indicates a glide path for inflation going down to the 4% handle in Q3 and Q4 FY23. While the RBI contends that the growth momentum remains positive, the stance however indicates that the RBI is willing to wait longer to see the growth becoming durable and sustainable. For now, the RBI has decoupled itself with the monetary policy momentum in the rest of the world, where higher inflation prints are leading to central banks of the developed economies to tighten rates. We believe that RBI may be able to hold back repo rate increases for longer and may not have any compulsion to follow global central banks unless their actions have any severe implication on the USD/INR rates. We foresee 2 repo rate increases in FY23 but predicting a timeline is difficult at this point."

Dharmakirti Joshi, Chief Economist, Crisil said, “The focus of the RBI continues to be on supporting India’s GDP growth, which is expected to be a mere 1.3 per cent above the pre-pandemic level this fiscal, according to the first advance estimates by National Statistical Office. The MPC showed concern about the recent softening in economic activity and remains wary of the risks posed by successive Covid-19 waves. Clearly, Mint Road believes it has space to support growth, given that headline CPI inflation remains within its target of 2-6 per cent and is projected to dip to 4.5 per cent next fiscal. Exogenous risks have increased since the last monetary policy review meeting. Brent crude prices have jumped from $74.3 per barrel on average in December 2021 to over ~$90 now."

Sanjay Palve, Senior Managing Director, Essar Capital said, “The RBI has maintained an accommodative stance by not changing the repo and reverse repo rate, which was very much needed. GDP growth at 7.8 per cent for FY 23 looks practical, as the impact of the pandemic is diminishing and there is optimism in the economy, especially after the Union Budget. With the enhanced capital expenditure outlay to the tune of Rs.7.5 lakh crore, it will provide the necessary impetus to the infrastructure sector, bringing the economy back on track. Mass vaccination drive by the government has helped to keep the pandemic in check. With PSU banks in a much stronger position due to continuous policy measures from RBI, businesses can look forward to easing in long term availability of funds.”

YS Chakravarti, MD & CEO, Shriram City said, “The MPC’s unanimous vote to keep key policy rates unchanged is encouraging for credit growth which has been lagging at FY19 levels. The accommodative stance by the RBI will support economic activity, which is slowly getting back to normal. The Capex cycle is about to unfold, driven by the Union Budget 2022 infra spends and all-time low-interest rates will be supportive. The MSME segment, which forms the bulk of our loan book, has weathered the effect of COVID-19, and with the rising cost of raw materials, the low cost of funding will enable a faster return to profitability. Festive demand for 2-wheeler loans hit a record for SCUF; we expect the momentum to continue into 2022, as long as COVID doesn’t play spoilsport.”

Abheek Barua, Chief Economist, HDFC Bank said, “The RBI policy was largely on expected lines with, yet again, a clear emphasis on ensuring that the economy is on a path of durable growth recovery. It showed a clear tilt towards growth and a view that inflation, where elevated, is driven more by the supply disruptions rather than entrenched demand-side pressures. Also, its projections show that inflation is on a downward trajectory. This was the first policy of the calendar year and perhaps set the tone for the rest of the year. Were that indeed the case, the RBI is likely to follow a gentle approach to the normalisation and ultimately withdrawal of monetary support, unlike Western central banks that have switched to a hyper-aggressive mode. This is consonant with the growth and inflation dynamics specific to India.”

George Alexander Muthoot, MD, Muthoot Finance said, "We welcome the RBI’s stance to keep key policy rates unchanged and maintain ‘accommodative’ stance as long as necessary. RBI’s monetary policy stance today suggests that the RBI will follow a more calibrated approach towards policy normalisation. The government in its recent budget gave major thrust to capital spending, promoting a digital economy and supporting the MSME sector. We are hopeful and optimistic about broad-based economic revival in 2022 as both the RBI and the government are working together to revive and sustain growth on a durable basis post the challenges posed by the pandemic. We welcome the RBI’s stance of enabling better infrastructure for MSME receivables and extension of on-tap liquidity window for contact-intensive sectors.”

Anuj Puri, Chairman, ANAROCK Group, "The fact that the repo rates remain unchanged is good for home loan borrowers as the floating retail loan rates, which are directly linked to external benchmark repo rates, will continue at what are the lowest levels in the last two decades. A continuation of this low-interest rate regime supports the overall environment of affordability for some more time and is very welcome. While the window of opportunity for homebuyers to avail low-interest rates has been extended for some more time, it is unlikely to prevail for much longer - sooner or later, repo rates will rise. Overall, this courageous and progressive stance by the RBI factors in real-time ground realities and flies in the face of industry expectations that the repo rates would be increased."