event highlights

RBI Monetary Policy Highlights: The Monetary Policy Committee (MPC) of the Reserve Bank kept the repo rate unchanged at 4 percent and maintained an 'accommodative' stance. The RBI MPC began its three-day deliberations on Wednesday. In another major announcement, RBI Governor said that the commercial and co-op banks will not give out dividends this year and retain all the profits.

Dec 4, 2020

12:17

RBI KEY POLICY ANNOUNCEMENTS

KEY POLICY ANNOUNCEMENTS

> Repo rate left unchanged at 4%; status quo maintained for the third consecutive policy

> MPC maintains accommodative stance at least during current FY & into the next year

>All MPC members voted unanimously for a status quo, accommodative stance

On Inflation

>CPI inflation projection at 6.8% Q3 FY21, and at 5.8% for Q4 FY21

>CPI inflation seen at 5.2 to 4.6% in H1 FY22, with risks broadly balanced

Alert: RBI has projected CPI inflation at 6.8% for Q2FY21, 5.4-4.5% in 2H FY21, 4.3% in Q1 FY22 in Oct policy

>MPC of view that inflation is likely to remain elevated, barring transient relief in the winter months

>Monetary policy constrained at the current juncture from using the space available to act in support of growth

>Further efforts necessary to mitigate supply-side driven inflation pressures

On Growth

>Real GDP growth projection for FY21 revised to -7.5% from -9.5% earlier

>GDP growth seen at 0.1% in Q3 FY21 and 0.7% in Q4 FY21

>GDP growth seen at 6.5-21.9% in H1 FY22, with risks broadly balanced

>Signs of recovery far from being broadbased; dependent on sustained policy support

>Recovery in rural demand expected to strengthen further

>Urban demand recovery also gaining momentum

>Positive impulses clouded by a possible rise in infections in some parts of the country

>Private investment still slack and capacity utilisation has not fully recovered

>Prospects have brightened with the progress on the vaccines

Dec 4, 2020

12:06

Perspective by Joseph Thomas, Head of Research - Emkay Wealth Management on RBI's MPC announcement

“The RBI policy announcement reflects the determination of the central bank to continue with the accommodative policy, with the base rate unchanged at 4 %, while being cautious about the inflationary pressures that are building up. But growth gets the priority once again, with inflation projected to be lower in Q4 and H1 FY22. That all the liquidity measures initiated earlier will continue to be in force, is a consolation, especially in a high inflation scenario. The growth projections too mirror the gradually improving ground conditions, with the overall growth for this year put at -7.50 %, with mildly positive growth for Q3 and Q4. The features and contents of the policy gives the reassurance that lower rates and the plenty in liquidity will continue for a longer time period, till the time inflation rises so much as to derail it. The policy is supportive of both equity and fixed income markets, with its moderating implications for rates.”

Dec 4, 2020

11:54

Rate sensitive stocks rise post RBI policy announcement: Bank, Realty indices up 1%

Shares of interest-rate sensitive sectors- financials, realty and automobiles, were trading higher on Friday after the RBI MPC kept the repo rate unchanged at 4 percent while maintaining the 'accommodative' stance for this year and the next. The overall sentiment was upbeat after the RBI revised FY21 GDP growth to -7.5 percent from -9.5 percent earlier.

The banking and realty indices rose over 1 percent each post the policy decision while the Nifty Fin Services and Nifty Auto indices were also up 0.8 percent and 0.6 percent, respectively. In comparison, the benchmark Nifty also gained 0.6 percent to hit a new all-time high. Among stocks, major banking names like ICICI Bank, Axis Bank, HDFC Bank, Kotak Bank and SBI were all positive, up between half a percent to 2 percent. Most constituents in the auto index also rose post the policy. M&M, Maruti, Bajaj Auto, Tata Motors, and Hero Moto added 0.5-1 percent each. Realty players also cheered the RBI announcements. Omaxe, Godrej Properties, DLF, Sobha, and Sunteck Realty gained 1.7-5 percent.

Dec 4, 2020

11:42

Quote on RBI MPC by Jimeet Modi, Founder & CEO Samco Group

"RBI maintained status quo in-line with street expectations and GDP numbers too have been revised upwards. Although increasing inflationary tendencies have been acknowledged, little seems to have been done to contain the price index. In Fact it is assumed that CPI will cool down to below 5% in H1 of FY21-22. In all likelihood, inflation isn’t going lower given the massive helicopter money across the world created by central banks and run up in commodity prices such as crude, base metals. It is likely to remain elevated given that import restrictions are in place to support the domestic economy. Such a growth recipe will have unintended consequences of higher inflation not only in India but across the world which will be the bigger animal to tame a few quarters down the line. However, in the near term this will support recovery in financial markets and will keep the bulls charged in the capital markets."