RBI Monetary Policy Highlights: The Monetary Policy Committee of the Reserve Bank of India kept the repo rate unchanged at 4 percent for the sixth consecutive policy, maintains an accommodative stance amid uncertainty about the economic fallout of the second COVID-19 wave and rising inflation. The reverse repo rate is also unchanged at 3.35 percent. MSF and Bank rate also maintained at 4.25 percent
Dhiraj Relli, MD &CEO, HDFC Securities on RBI Policy
To preserve lives and livelihoods and prevent a resurgence in new waves of infections - policy support from all sides – fiscal, monetary and sectoral – is being provided to nurture recovery and expedite return to normalcy. RBI’s MPC decided to retain the rates and continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis. MPC also whittled down macroeconomic growth numbers and upped its inflation projections, completely in line with market expectations. It gives added credibility to RBI’s ability to navigate the country during difficult times.
Relief given to contact intensive industries - special liquidity facility to SDBI for on-lending to MSMEs and enhancing the exposure thresholds under resolution framework augers well to support growth impulses from those severely affected sectors. An increase in the quantum of secondary market purchases under G-SAP 2.0 will keep benchmark yields anchored around 6% levels. Overall, monetary policy is on expected lines and has checked all boxes.
Jimeet Modi, Founder & CEO Samco Group on RBI Policy
The RBI has indeed given a helping hand, in whatever way possible to boost liquidity for MSMEs, the hardest hit space in this pandemic. Support to the contact intensive sectors is definitely a move in the right direction although the relief package could have been higher to hold the bottom of the pyramid from losing ground. Various other decisions in terms of opening the debt markets to FPIs and facilitating a Rs 1.2 lakh crore in Q2FY22 for GSAP2.0 will aid to safeguard our economy from contraction and keep markets buoyant.
Rate-sensitive stocks mixed after RBI policy announcement; banks fall, realty stocks in the green
Shares of rate-sensitive sectors were mixed after the Reserve Bank of India (RBI) kept the repo rate unchanged at 4 percent for the sixth consecutive time. While banks and financial stocks were largely in the red, the realty index rose as much as 1 percent in intra-day deals and the auto sector added around 0.3 percent. In the banking space, most stocks were in the red with Bandhan Bank, IDFC First Bank, Punjab National Bank, HDFC Bank, SBI, and RBL Bank down 1-2 percent. Meanwhile, financials including Power Finance Corporation, REC, HDFC, ICICI Prudential, M&M Finance and Bajaj Finance were trading in the green. In the auto space, M&M, Motherson Sumi, MRF and Hero MotoCorp were up 0.5-1 percent while Phoenix Mills, Brigade Enterprises, Godrej Properties, Sunteck Realty and Prestige Estates from the real estate sector were up in the range of 0.5 percent to 2 percent.
RBI monetary policy on expected lines, balanced and calibrated, say economists and market veterans
Abheek Barua, Chief Economist, HDFC Bank on RBI Policy
"In today’s policy announcement, the RBI ticked all the right boxes in terms of its response to the second wave. The announcement of GSAP 2.0 for INR 1.2 lakh crore and the carve out for SDLs bonds in the program is likely to help ease the pressure in the bond market, especially given the higher state borrowing pressure and increase in Centre borrowings this fiscal. The central bank’s measure to provide liquidity support for contact intensive sectors is likely to aid credit flow to these sectors. That said, a more equitable distribution of credit is likely to be contingent on the whether the assessment of risks is in line with the markup over reverse repo provided by the RBI to banks. Therefore, some form of credit guarantees is perhaps required for de-risking the system."
Shaktikanta Das, RBI Governor says
- We have not made a sectoral differentiation in the resolution framework
- We are intervening wherever we see stress
- Our response going forward will depend on how the situation evolves
Shaktikanta Das, RBI Governor says
- Additional tool deployment will depend on how the situation evolves
- MPC has taken a conscious decision to focus on growth, maintain accommodative guidance
- Our CPI inflation forecast of 5.1% for FY22 is well within target range of 2-6%
Michael Patra, DG, RBI says
- Inflation is not persistent at this time; it will be persistent when it turns demand-pull
- MPC believes inflation is driven by supply pressures at the moment
- As and when demand pressures start feeding into the monetary process, we will act
Shaktikanta Das, RBI Governor says
- Our forex operations are driven by the consideration of maintaining exchange rate stability
- We have been quite successful at maintaining currency stability through the pandemic
- EMEs have to build their own buffers, RBI is no exception
- Surplus transfer is a pure accounting issue, not a policy issue
Shaktikanta Das, RBI Governor on COVID second wave
"Rural and urban demand has been dented in the first wave. Data indicates second wave has moderated. Second wave likely to be confined to Q1FY22. Most businesses have adapted to the new situation . Expect overall demand position to improve from Q2."
Shaktikanta Das, RBI Governor on policy
- There is no thinking at the moment on normalising the policy stance
- Too premature to talk about policy normalistion
Shaktikanta Das, RBI Governor on Inflation
- Inflation print in April gives elbow room and space on liquidity operations
- Inflation forecast revision is not a very significant one
Shaktikanta Das, RBI Governor says:
- Yield curve looks steep because rates are low at the short end due to abundant liquidity
- Bond markets should take signals from our communications, actions, forward guidance
Shaktikanta Das, RBI Governor says:
- We are focused on the entire yield curve across maturities, not just 10-year
- GSAP auctions included bonds of several maturity profiles
Media interaction on RBI’s Monetary Policy by RBI Governor Shaktikanta Das begins
Perspective by Madhavi Arora, Lead Economist, Emkay Global Financial Services on RBI's MPC announcement
“The MPC expectedly stayed on hold and emphasised its commitment to keeping policy accommodative and maintaining ample liquidity as long as necessary. This more state-led guidance hinges on growth revival becoming durable. The 100bps downgraded FY22 growth forecast to 9.5% was accompanied with acknowledgment of rising uncertainty amidst Covid second wave and localized lockdowns, while inflation is seen at 5.1% for FY22, broadly same as last policy. The bigger move was with regards to yield management as the RBI stressed on smooth liquidity management and orderly Gsec borrowings, with a more vocal and defined GSAP. Overall, while we do not see any action on the policy rate front in the coming months, we are poised to see a more accountable and action oriented RBI ahead. We reckon even as yields may inch up gradually and orderly, the RBI will continue to strive fixing skewed yield and maintain its preference for curve flattening (with GSAPs and OMOs). We see net OMO + GSAP purchases to the tune of Rs4.5-5tn in FY22.”
RBI Monetary Policy quote by Shishir Baijal, Chairman & Managing Director, Knight Frank India
“We welcome the RBI’s move to maintain status quo on key policy interest rates. Although expected, the RBI has continued its growth supportive policy stance. Additional measures to enhance liquidity support to most vulnerable touch sensitive sectors and small businesses; and expanded credit exposure limit for resolution is a great move. As the nation attempts to recover from the second wave of pandemic, there is a dire need to provide monetary policy support - on account of both easy availability and lower cost of funds - to households and businesses alike. Besides the monetary policy intervention, as we come out of graded regional lockdowns and further resume economic activities, there is a greater need to provide adequate fiscal support to jump start consumption demand. Demand stimulant measure like credit subsidy or tax waivers even for a limited period can play a transformative role until we reach the pre COVID-19 normalcy thresholds.”
Quote on Monetary policy from Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
"Monetary policy came completely on expected lines: no change in policy rates, a continuation of the accommodative policy stance and 1% downward revision in FY22 GDP growth rate by 100bp. Governor Das has reiterated that the central bank's priority now is to support growth. That's why the MPC has stated that "the accommodative stance will continue as long as necessary" even while raising the CPI inflation forecast to 5.1% for FY 22 GDP growth rate by 100 bp. The announcement of G-SAP 2.0 to the tune of Rs 1.2 lakh crores will ensure adequate liquidity in the system. On tap liquidity window for contact intensive sectors is an unconventional measure to mitigate the sufferings of segments like hotels, restaurants, tourism, bus operators, beauty parlours, saloons etc. Upward revision of inflation rate will raise bond yields marginally in the short run"
RBI Governor today announced that the MPC left the repo rate unchanged at 4% for the 6th straight time.
Quote on Monetary Policy from Deepthi Mathew, Economist at Geojit Financial Services
"In an expected move, RBI maintained the status quo in policy rates. To support and revive the economy, RBI would continue with the accommodative stance as long as it is needed. The Governor cautioned about the factors that could put upward pressure on inflation. The announcement of G-SAP 2.0 at INR 1.2 lakh crore for Q2FY22 shows RBI’s commitment to keeping the bond yields in check. The inclusion of SDL on G-SAP would support state government borrowings from the market"
Quote on RBI Policy by Anuj Puri, Chairman – ANAROCK Property Consultants
"Had it not been for the pandemic the RBI would have definitely taken a different stance for the benchmark rates today. Considering the rate at which inflation is rising presently in the country, the RBI would have sought to increase the key rates. However, since the economy is still under pressure due to the pandemic and inflation is rising due to supply-side issues coupled with overall consumption sluggishness, it has maintained the status quo on benchmark rates.
This is the sixth time in a row that RBI has kept the benchmark rates unchanged, in clear response to the exigencies of the COVID-19 pandemic uncertainties.
It is certainly positive for home loan borrowers as the floating retail loan rates (which are directly linked to external benchmark repo rates) has been at the lowest level of the last two decades. The continuation of this low interest rate regime works very well for all borrowers as the environment of high affordability is likely to continue for some more time."
View on RBI Monetary Policy by Sandeep Bagla CEO -TRUST Mutual Fund.
"RBI maintains accommodative stance, keeping all rates unchanged. vowing to keep conditions as supportive as possible to revive growth. Impact of second wave on inflation could be handled through supply side measures. The policy bodes well for financial assets as well as the real economy, growth and employment as RBI has again stated its resolve to maintain conducive conditions to support durable growth. The policy is pragmatic, at the same time progressive and preemptive in its approach.”
Stock Markets flat post the RBI policy announcement
Benchmark indices Sensex and Nifty continued to remain flat after the RBI maintained status quo on interest rates, as expected by the markets. Among rate sensitives, while Nifty Bank was in the red, Nifty Realty surged nearly a percent post the announcement. Nifty Auto was also up 0.3 percent,
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RBI on measured for contact intensive sectors
- On-tap liquidity to be available for contact-intensive sectors
- Spa, salons, retaurants, tour operattors defined as contact intensive
- Rs 15,000 crore to be available to banks to offer 3 yr loans to contact-intensive sector
- Banks can park equivalent amount with RBI at 25 bps above reverse repo rate
RBI on measures to support economy
- Futures flows necessitated RBI to intervene with buys, sells in spot & forward market
- RBI to use all instruments at its command to support economy
- Important to build adequate provisioning & capital buffers
- MPC had decided on a state-based rather than time-based guidance in April
- Strength of financial system is crucial in fight against the pandemic