The Reserve Bank of India today announced its monetary policy, in which it has kept the pension rate unchanged at 4% and maintained its “accommodative” policy.
India Inc. has reacted very positively to the developments. Here are some of those reactions.
Zarin Daruwala, Cluster CEO, India and South Asia (Bangladesh, Nepal and Sri Lanka) markets, Standard Chartered Bank
The Monetary Policy Committee (MPC) issued a balanced policy statement supporting growth while keeping an eye on inflation. The continuation of the accommodative policy, the announcement of G-sec purchases through the G-Sec Acquisition Program (GSAP) and the introduction of term repo are expected to anchor interest rates. The six-month extension of the On-Tap Targeted Long-Term Repo Operations (TLTRO) program as well as the Priority Sector Bank Loans (PSL) classification system of bank loans to NBFCs for on-lending is expected to help improve the provision of targeted credit. The INR 50,000 crore support offered to SIDBI, NABARD and NHB will also increase credit growth. Raising the threshold for farmer working capital loans that would qualify as PSL loans bodes well for the rural sector.
Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life
RBI has taken an accommodating pause and reaffirms its accommodative stance and momentum to support the economic recovery. The central bank has announced a program to acquire G-Sec in the secondary market (GSAP 1.0), which indicates an intention to schedule its purchases of G-sec and will help manage the yield curve and could also help reduce the term premium. The GDP growth forecast for FY22 remained unchanged at 10.5% (lower than the IMF forecast of + 12.5% growth), and the inflation forecast remained broadly unchanged. The RBI also intends to lengthen the duration of the variable pension rate auctions, thereby helping to manage the system’s liquidity according to changing conditions and keep it stable (although the governor has said this should not be interpreted as a tightening of liquidity). Overall, policy has been accommodative with lower bond yields, which should also benefit equity markets by keeping borrowing costs under control for some time.
Dhawal Dalal, CIO-Fixed Income, Edelweiss Mutual Fund
In today’s monetary policy, the RBI Governor not only reiterated his commitment to maintain the current accommodative policy until the economy is on solid footing, but also pleasantly surprised market participants. bond with the Government Securities Acquisition 1.0 (GSAP 1.0) project which will purchase government securities worth Rs. 1 trillion in the first quarter of the fiscal year22. Bond market players have always aspired to an RBI Open Market Operations (OMO) buying schedule. The RBI probably heard their prayers and decided to go with GSAP 1.0. We believe that the successful execution of this program will achieve the following two objectives:
1. It will provide certainty to bond market participants regarding RBI’s commitment to support the bond market in FY22.
2. This will also help reduce term premiums in the long run.
Vikash Agarwal, President, Indian Chamber of Commerce (ICC)
Today, the RBI kept interest rates unchanged for the 5e times in a row as the economy faced a new threat to growth due to the resurgence of Corona cases. The Central Bank kept the benchmark repo rate unchanged at 4% and the reverse repo rate at 3.35% and maintained an accommodative policy to support growth. The Monetary Policy Committee (MPC) stand was helped by the inflation rate from 5.2% in the first half of fiscal year 20-21 to 4.4% in the third quarter of the same.
The Indian Chamber of Commerce (ICC) also praised the RBI’s assurance of ensuring sufficient liquidity in the system so that productive sectors obtain adequate credit, ensure orderly conduct of public borrowing and preserve financial stability. The commitment to a schedule of operations on the open market (OMO), with the purchase of 1 lakh crore of G-Sec, during the first quarter of the current fiscal year, will help to the evolution of the yield curve. Improving the Ways & Means Advance limit to ₹ 47,010 crore, up 46% from the current limit of ₹ 32,225 crore would in part help fund the expenses necessary to generate demand.
The Indian Chamber of Commerce deeply appreciates this sensitive and accommodating position of RBI which would benefit the economy and all stakeholders including industry.
Esha Khanna – Assistant Professor, Sarla Anil Modi School of Economics, SVKM NMIMS
The RBI is once again acting as a guarantee in the face of rising infections in response to changing macroeconomic indicators. The main feature remains that G-SAP operations are likely to stabilize and strengthen the bond yield curve with the extension of the TLTRO system. The special refinancing facilities for all Indian financial institutions and the raising of the maximum balance of payments limit make the policy more inclusive and will certainly ensure the flow of liquidity and credit to the troubled sectors. The political decisions must be applauded for having remained accommodating and for having given the essential impetus to the economy through direct and indirect measures, because the downside risk still prevails.
Mohit Ralhan, Managing Partner and Chief Investment Officer, TIW Private Equity
RBI maintained its accommodative stance, indicating that the main area of focus is economic growth and recovery. This is an extremely positive step, confirming in particular the continuation of the accommodating body until the moment when it is necessary to support growth. G-Sec’s acquisition program is also important enough to ensure cooling of bond yield and financial stability given the global uncertainty around COVID-19 risks. RBI has demonstrated a sustained commitment to growth and maintaining adequate liquidity in the financial system, which bodes well for the year ahead. Recently, the markets have been under pressure mainly due to the increase in COVID-19 cases and RBI’s political announcements today may give it new momentum.
Niraj Kumar, Director of Investments, Future Generali India Life Insurance Co. Ltd
All in all, an extremely accommodating and pragmatic growth-oriented policy. MPC has remained on track despite a tightrope to balance “ incumbent growth and inflation dynamics ”, especially at a time when the specter of the surge in Covid 19 cases and the uncertainty that the result had darkened the markets. MPC reassuringly tried to appease the markets by reaffirming its commitment to maintain an accommodative policy with a shift to a “state-based orientation” and maintaining sufficient liquidity. A boost has been to give the antidote to the bond markets in the form of announcing an explicit OMO-GSEC purchase schedule, which should put an end to mounting apprehensions of the mismatch of the supply and demand in bond markets. MPC has rightly continued to remain cautious and vigilant and not react to the global and domestic pressures in place to maneuver monetary policy.