RBI Monetary Policy LIVE Updates: The Reserve Bank of India on Friday kept the benchmark repo rate unchanged at 4 percent while maintaining its "accommodative" stance. The reverse repo rate stands at 3.35 percent. The central bank has also maintained the GDP growth forecast for FY22 unchanged at 9.5%. It sees CPI inflation at 5.7% for FY22 versus 5.1% projected earlier. The RBI Governor Shaktikanta Das also announced certain measures w.r.t. to TLTRO and GSAP auctions. Catch the highlights of RBI Policy here:
Here are the key highlights of today's RBI Monetary Policy
- MPC leaves Repo Rate Unchanged at 4%, Reverse Repo unchanged at 3.35%
- MPC to continue with accommodative stance as long as necessary to revive & sustain growth on a durable basis
- MPC voted unanimously to keep repo rate unchanged
- MPC voted 5:1 to keep stance accomodative; Jayanth Varma voted against
- CPI inflation forecast raised to 5.7% for FY22 vs 5.1% earlier
- CPI inflation seen at 5.9% in Q2 FY22 vs 5.4% earlier
- CPI inflation seen at 5.3% in Q3 FY22 vs 4.7% earlier
- CPI inflation seen at 5.8% in Q4 FY22 vs 5.3% earlier
- CPI inflation seen at 5.1% in Q1 FY23
- Supply-side drivers could be transitory while demand-pull pressures remain inert
- Pre-emptive monetary policy response at this stage may kill the nascent and hesitant recovery
- Inflation may remain close to the upper tolerance band up to Q2 FY22
- Inflation pressures should ebb in Q3 FY22 on account of kharif harvest arrivals
- Current assessment is inflationary pressures are transitory & largely driven by adverse supply side factors
- Inflationary pressures are being closely and continuously monitored
- MPC is conscious of its objective of anchoring inflation expectations
- Outlook for aggregate demand is improving, but still weak and overcast by the pandemic
- FY22 Real GDP growth forecast retained at 9.5%
- Q1 FY22 GDP growth projection revised up to 21.4% vs 18.5% earlier
- Q2 FY22 GDP growth projection revised down to 7.3% vs 7.9% earlier
- Q3 FY22 GDP growth projection revised down to 6.3% vs 7.2% earlier
- Q4 FY22 GDP growth projection revised down to 6.1% vs 6.6% earlier
Nascent and hesitant recovery needs to be nurtured through fiscal, monetary and sectoral policy levers
Domestic economic activity has started normalising with ebbing of second wave, phased reopening of economy
High-frequency indicators suggest consumption, investment & external demand on the path of regaining traction
Corporates have been able to maintain their healthy growth in sales, wage growth and profitability
Eco activity has broadly evolved on the lines of the MPC’s expectations in June
Economy is recovering from the setback of the second wave
Activity likely to gather pace with progressive upscaling of vaccinations, continued large policy support, buoyant exports
- Decided to conduct fortnightly VRRR auctions of Rs 2.5 lakh crore on August 13, 2021; Rs 3 lakh crore on August 27, 2021; Rs 3.5 lakh crore on September 9, 2021; and Rs 4 lakh crore on September 24, 2021
- Enhanced VRRR auctions should not be misread as a reversal of the accommodative policy stance
- Propose to conduct two more auctions of Rs 25,000 cr each on August 12 and August 26, 2021 under G-SAP 2.0
- On-tap TLTRO scheme extended by three months till Dec 31, 2021
- Marginal Standing Facility (MSF): Extension in Period of Relaxation until Dec 31, 2021
- Change in reference rate from LIBOR to an Alternative Reference Rate will not be treated as restructuring
- Deadline for Achievement of Financial Parameters under Resolution Framework 1.0 extended from March 31, 2022, to October 1, 2022
Madhavi Arora, Lead Economist, Emkay Global Financial Services
The MPC expectedly kept the key rates unchanged unanimously and reiterated its accommodative stance both on rates and liquidity. However, one dissent on continuation of accommodative stance for foreseeable future shows the emerging split getting generated within the MPC. The MPC maintained that growth is still sub-par and needs consistent firm traction, and that continued policy support is vital for a durable growth revival. However, despite emerging inflation risks and sharp upward revision in FY22 inflation, MPC retained the view that inflation has transitory aspects, led by supply-side bottlenecks, even when they see inflation hugging the higher end of their tolerance band in the near term. However, the focus was on Communication on liquidity management key amid evolving market risks and the yield curve management. The RBI reaffirmed longer tenor VRRRs as the first step toward normalization amid current bumper liquidity surplus and reinstated that the normalization of liquidity operations should not be confused with liquidity tightening.
The reintroduction of fortnightly VRRRs with higher quantum restates the same. We note the surplus liquidity has not necessarily percolated well across the curve or segments of the rates market as asymmetric gains in credit markets. This also raises the risk of rerouting of surplus liquidity and excessive risk taking in other asset classes. We do not see the VRRR quantum increase as a step towards Reverse Repo tightening in the near-term and still see that not happening in CY21. On YCC, the RBI reiterating its support for the bond market and also indicating that they do not necessarily target any level or segment of the yield curve and would like to see active trading in all segments of the yield curve for its orderly evolution. Their statement on keeping a balance in on-the-run and off-the-run securities while conducting GSAPs is welcome as with markets were showing their discomfort with RBI’s choice of papers for GSAP and devolution of papers at cut-off yields uncomfortable to the RBI. However, the RBI still hinted at their preference for lower sovereign risk premia ahead. We reckon that even with yields inching up orderly and gradually, the RBI will continue to strive to fix the artificially skewed yield curve and maintain its preference for curve flattening. We expect the RBI to get more accountable and action oriented as we move into 2HFY22. We maintain RBI may have to stretch GSAP/OMOs beyond Rs4.5-5tn+ to manage impending demand-supply mismatch.
Ram Raheja, Direct, S Raheja Realty
This RBI policy status quo will further allow demand creation including for high involvement products like real estate. The real estate sector is expected to continue benefiting from the pass-through of low benchmark lending rates to end consumers, especially in the residential segment. Homebuyers will continue to take advantage of the lowest ever home loan interest rates and with the emerging need, the demand for housing is going to sustain as it is a safe-haven asset. With improved GDP growth estimated in the near future, we expect that the real estate sector will contribute a substantial share to overall economic development’.
Abheek Barua, Chief Economist, HDFC Bank
The RBI has continued with its line of supporting growth despite the recent spikes in inflation. That said, recognizing the concerns around inflation (RBI revised up its inflation forecast to 5.7% from 5.1% for FY22) and the excess build-up in systemic liquidity over the last month (at INR 8.5 lakh crore as of 4 August), we saw the central bank take its second step towards liquidity normalization. The first being the tolerance towards some upward adjustment in the 10-year yield in July.
The RBI announced an increase in the quantum of variable reverse repos (VRR) by INR 2 lakh crore and also provided forward guidance on systemic liquidity to be close to INR 4 lakh crore by September-end. In response to tighter liquidity conditions, we expect short term rates to increase and return on instruments like CPs to rise. That said, this liquidity normalization should be viewed as a gentle calibrated move, partly in response to large excess liquidity surplus in the system, and not as an aggressive roll-back of monetary policy support.
With regards to the bond yield curve, while the 10-year yield is likely to inch up in response to the policy announcement today, the uneven structure of the curve could persist unless there are more evenly distributed interventions, across the curve, through G-SAP, OMOs, Operation Twists by the central bank.
Amar Ambani, Senior President and Head of Research – Institutional Equities, Yes Securities
We infer that RBI is likely to stand put on the Repo rate till the end of this fiscal year, as the endeavor to stabilize growth will be a long-drawn process, given the threat of evolving COVID strains. In case, growth stabilizes later this year, the process of policy normalization will initially begin with a hike in reverse repo, rather than the repo rate.
Vikas Wadhawan, Group CFO, Housing.com, Makaan.com and Proptiger.com
On widely expected lines, the RBI on August 6 decided to maintain a status quo on key policy rates. The decision of the RBI MPC augurs well for the real estate industry in general and home buyers in particular, since the record low-interest rate regime would enable a large number of buyers to invest in property. Since homebuyer sentiment has already improved in recent times, based on an increase in housing affordability in India, the RBI move will prompt buyers and investors to put their money in secured assets like real estate. The extraordinary liquidity support the RBI has provided to the economy in the aftermath of the coronavirus pandemic is highly commendable.
Samantak Das, Chief Economist and Head Research & REIS, JLL
With the concerns of the second wave ebbing supported by aggressive ongoing mass vaccination, broad-based policy support, normal monsoons, likely easing of supply-side issues, RBI maintains its growth forecast for FY 21-22 at 9.5%. As the economy gradually gains foothold in the aftermath of the receding impact of the second wave, RBI has indicated greater confidence in the resilience of the Indian economy.
Green shoots in the residential sector have emerged in tandem with the gradual improvement in the economic environment as businesses reopen. Prevailing lower home loan rates supported by RBIs policy rate stance, stable prices and attractive payment plans and schemes of developers are aiding the translation of pent-up demand into sales. If the downward trajectory in COVID-19 cases is sustained, the sector is expected to make a healthy recovery in H2 2021.
Niranjan Hiranandani – MD- Hiranandani Group and National President – NAREDCO
The sentiment seems to be quite optimistic with recurrent accommodative stance by 250 basis point reduction in Repo rate since FEB 2019 even in wake of inflationary pressure. This signals market buoyancy with steady economic recovery; regained momentum in consumption in the wake of urban job stability leading to increase in private spending. The policy normalization and constant financial infusion is skewed towards healthy economic recovery with a positive GDP outlook pegged at 9.5% for FY 21-22. This will augur investment spurt and credit enhancement to the industry for an uptick in growth yield curve.
Increase in the retail home loans segment with less than 2% NPA is symbolic to the fundamental spur in housing demand that offers stability and security in challenging times. Further, the low interest rate will augment the home buying sentiment and facilitate financial cushion to log the deals in backdrop of festive tailwinds. Also, if regulators can enhance credit supply to the stalled projects via permitting more SWAMIH funds; will go long way in resurrecting the prolong sluggish real estate market and ensure customer delivery.
Jyoti Roy - DVP- Equity Strategist, Angel Broking on RBI Policy
We expect the RBI will continue to maintain their accommodative monetary policy given that the high inflation levels are transitory in nature and should start coming off in the second half of the year. Moreover, the recovery from the second Covid wave is still nascent and needs to be nurtured and we expect the RBI will continue to use all tools available including OMOs, G-SAP, TLTRO, operation twist etc. to ensure that longer term interest rates are well anchored and there is adequate credit flows to the most stressed sectors.
RBI Monetary Policy LIVE Updates | Between FY15-19, total recovery under Lok Adalat regime was about 5%, under DRT 6% and SARFAESI 20%. Under IBC, recovery has been 40%, with recoveries before pandemic at 45%. Time taken to resolve under IBC needs to be reduced, says RBI Governor Das.
RBI Monetary Policy LIVE Updates | "All regulated entities are expected to comply with the regulatory guideline. Our job is to ensure compliance as a regulator. Our actions are an outcome of our keenness and responsibility to ensure compliance." RBI Governor Shaktikanta Das said on Mastercard and HDFC Bank.
RBI Monetary Policy LIVE Updates | There is no blanket ban on opening of Current Accounts (CA). The technology today enables anywhere anytime banking and we see no disruptions w.r.t CAs. We have been quite flexible in our approach to CA issue. Taking into consideration by banks, we have also extended the timeline for implementation of CA rules to December: M Rajeshwar Rao, RBI Deputy Governor.
RBI Monetary Policy LIVE Updates | We do not expect the yield curve to remain at a fixed point. We intervene in the market from time to time to ensure an orderly evolution of the yield curve. The borrowing cost of the government was at an all-time low last year. We do not have a specific target of the yield curve and focusing on all tenors: Shaktikanta Das, RBI Governor.
RBI Monetary Policy LIVE Updates | We are focused on interest rates for existing loans, not just new loans. We saw 217 bps transmission on fresh rupee loans, 117 bps on outstanding rupee loans since February 2019. The transmission wrt fresh rupee loans has been 146 bps since the pandemic and 101 bps for outstanding rupee loans. Retail housing loans have been at historic lows: Shaktikanta Das, RBI Governor.
RBI Monetary Policy LIVE Updates | The approach to inflation is not one of a "cold turkey" approach. A flexible inflation targeting framework allows us to secure disinflation over a period of time. MPC is striving to set a glide path for inflation to eventually bring it back to target: Michael Patra, RBI Deputy Governor.
RBI Monetary Policy LIVE Updates | Michael Patra, RBI Deputy Governor says 2021 was an extraordinary year when we were hit by the pandemic. Inflation averaged 6.2% for FY2021; 5.7% forecast for FY22 is an improvement on that. The average rate of inflation for Q1 FY22 at 5.6% is well tracking the trajectory we set for the year.
RBI Monetary Policy LIVE Updates | Shaktikanta Das, RBI Governor says, these are extraordinary times, RBI has to manage conflicting objectives. Policy action of RBI has to be nuanced, cannot be uni-directional in these times
Shishir Baijal, Chairman & Managing Director, Knight Frank India
An extended period of historic low-interest rates would ensure home loan rates remain at current benign levels and aid the revival of the real estate sector. We have also seen many real estate developers refinancing their borrowings at lower interest costs and benefit from the lower interest rate regime, which is crucial at this juncture when business operations are facing pandemic pressure. In addition to this monetary policy intervention, the time is ripe for the RBI and Government to undertake more valiant demand stimulant measures to help the economy to cross FY20 GDP levels and ensure a broad-based revival. The lower interest rate environment and demand stimulant measures from the Government coupled with the ongoing vaccinations are likely to encourage businesses and consumers to avail credit to expand their business or fulfil consumption requirements, thereby stimulating the economy.
Nitin Shanbagh, Head – Investment Products, Motilal Oswal Private Wealth on RBI Policy
RBI continues to prioritize growth and maintain financial stability as far as necessary. Having said that, it remains mindful of anchoring inflation expectations. While maintaining a balance between growth/inflation dynamics, RBI is likely to continue with orderly evolution of the yield curve through OMOs & GSAPs. Till durable growth recovery is seen, RBI may not resort to reversal of policy rates and would maintain sufficient liquidity in the system. However, RBI may gradually signal towards normalization of rates. From investors point of view, focus should be towards investing in high quality roll down accrual strategies through a bar-bell approach viz. combination of short term and long term maturity strategies with weighted average portfolio average maturity of 4-5 years. For yield enhancement, investors can also consider investing upto 25% in well researched REITs, InVits, select high yield MLDs, etc
Ravindra Sudhalkar, CEO at Reliance Home Finance on RBI Policy
The move by the Reserve Bank of India's Monetary Policy Committee to keep the repo rate unchanged at 4% was an expected move given the growth concerns hanging over the economy, especially from the impending third wave of the COVID19 pandemic. Even though inflation is high and a concern, any rate hike at this juncture would've been a deterrent to growth. Also, although the RBI maintained GDP growth forecast at 9.5% for FY22, Governor Shaktikanta Das has pointed out that the underlying conditions around aggregate demand are still weak. For home buyers this removes any kind of uncertainty over interest rates as we can expect this accommodative stance to continue for some time. However, planning ahead and negotiating smartly with banks on home loans rates is always advisable.
RBI Monetary Policy LIVE Updates | The MPC votes 5:1 to continue with the accomodative monetary policy stance
All members of the MPC – Dr. Shashanka Bhide, Dr. Ashima Goyal, Prof. Jayanth R. Varma, Dr. Mridul K. Saggar, Dr. Michael Debabrata Patra and Shri Shaktikanta Das – unanimously voted to keep the policy repo rate unchanged at 4.0 per cent. All members, namely, Dr. Shashanka Bhide, Dr. Ashima Goyal, Dr. Mridul K. Saggar, Dr. Michael Debabrata Patra and Shri Shaktikanta Das, except Prof. Jayanth R. Varma, voted to continue with the accommodative stance 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. Prof. Jayanth R. Varma expressed reservations on this part of the resolution, MPC statement said.
RBI Monetary Policy LIVE Updates | Inflation may remain close to the upper tolerance band up to Q2:2021-22, but these pressures should ebb in Q3:2021-22 on account of kharif harvest arrivals and as supply side measures take effect. Taking into consideration all these factors, CPI inflation is now projected at 5.7 per cent during 2021-22: 5.9 per cent in Q2; 5.3 per cent in Q3; and 5.8 per cent in Q4 of 2021-22, with risks broadly balanced. CPI inflation for Q1:2022-23 is projected at 5.1 per cent: Governor Shaktikanta Das.
RBI Monetary Policy LIVE Updates | External demand remained buoyant during Q1:2021-22 and was reflected in increasing exports, lending critical support to aggregate demand. Strong external demand is an opportunity for India and further policy support should help in capitalising on this. Global commodity prices and episodes of financial market volatility, together with vulnerability to new waves of infections are, however, downside risks to economic activity. Taking all these factors into consideration, projection of real GDP growth is retained at 9.5 per cent in 2021-22 consisting of 21.4 per cent in Q1; 7.3 per cent in Q2; 6.3 per cent in Q3; and 6.1 per cent in Q4 of 2021-22. Real GDP growth for Q1:2022-23 is projected at 17.2 per cent: Governor Shaktikanta Das.
RBI Monetary Policy LIVE Updates | Our actions, together with those of the Government, are aimed at alleviating distress and prioritising growth, while keeping the financial system healthy and stable: Governor Shaktikanta Das.
RBI Monetary Policy LIVE Updates | Today, we are in a much better position than at the time of the MPC’s meeting in June 2021. As the second wave of the pandemic ebbs, containment eases and we slowly build back, vaccine manufacturing and administration are steadily rising. Yet the need of the hour is not to drop our guard and to remain vigilant against any possibility of a third wave, especially in the background of rising infections in certain parts of the country: Governor Shaktikanta Das.
Anuj Puri, Chairman - ANAROCK Property Consultants
Had it not been for the pandemic, the RBI could have taken a different stance for the benchmark rates today. The unchanged repo rate regime works well for home loan borrowers as the floating retail loan rates, which is directly linked to external benchmark repo rates, have been at the lowest level in the last two decades. The continuation of this low interest rate regime supports the environment of affordability which has become the new hallmark of the housing market - during the pandemic, and even before.
Sandeep Bagla CEO TRUST Mutual Fund
RBI policy is hawkish at the margin. RBI has acknowledged the strong growth and negative surprise on the inflation front. One of the MPC members has voted for a change in accomodative stance. While there is no real change in the policy, bond market participants will take the nuanced change in language seriously. There is a distinct possibility that yields at the longer end, 10 year, will inch up towards 6.50% gradually. Investors should invest in bond funds with lesser than 3 year maturity to minimise interest rate risk.
RBI Monetary Policy LIVE Updates | RBI has announced more than 100 measures to curtail Covid impact. We will continue to monitor measures that are still under implementation. The RBI has been engaged with banks, market bodies to take proactive steps. We decided to amend guidelines w.r.t. export credit in foreign currency: RBI Governor Das.