The policy of the RBI, a nice “balance” between growth and inflationary expectations
The Reserve Bank of India maintained an accommodative stance and an interest rate unchanged at 4% and a repo rate at 3.35%. The forecast for real GDP growth fell to 9.5% from 10.5% in FY2022 due to a decline in economic activity in April and May 2021. Inflation CPI was forecast at 5.1% in FY 22. Rising crude and logistics prices have put some pressure, but there is still some room for maneuver and RBI will try to maintain the inflation in the 2% to 6 bar, experts said. Free newspaper.
The RBI’s policy has once again proven to be a good balance between growth and inflationary expectations, said AK Das, chief executive and CEO of Bank of India. “The broadening of the scope of the COVID 2.0 resolution framework coupled with the recent modification of the ECLGS is a welcome step to support needy segments,” he said.
Despite inflationary pressures, it seemed unlikely that the central bank would tighten policy as it could derail the ongoing recovery, said Dr Alok Sheel, RBI Professor of Macroeconomics, Indian Council for Economic Relations Research international (ICRIER). The RBI does not expect CPI inflation in 2021-2022 to exceed its upper target of 6%, so it naturally continues to focus on its secondary monetary policy objective of stabilizing the business cycle, which was already in serious trouble even before Covid-19. It can be seen that RBI’s accommodating stance long predated the COVID slowdown.
In preparation for the second wave, RBI reduced its growth forecast for 2021-2022 from 10.5% to 9.5%.
RBI also believes that the fear of tantrums and associated capital outflows has subsided for the time being, although it continues to be vigilant and carry out two-way interventions in the FE market to maintain the market. stability.
In his latest statement, the governor said the RBI is working closely with the government, which has led to speculation about an associated tax package to boost growth. While there was no such reference in today’s statement, this does not detract from the fact that with the continued accumulation of bad debts obstructing the transmission channels of monetary policy, the fiscal policy remains by far the most powerful game to get the economy back on track. . “
RBI lowered growth forecast for this fiscal year from 10.5% to 9.5% due to disruption of economic activity by Covid Wave 2, but now people and businesses are adjusting to conditions pandemic work and the vaccination process is expected to accelerate in the coming months. . Mohit Nigam, Head-PMS, Hem Securities said the country’s economic indicators declined in May 2021 but remain higher than last year and the economy is expected to improve with the multiple stimulus packages and accelerating vaccination against COVID.
“The RBI has maintained its goal of equitable distribution of liquidity and will continue to conduct regular liquidity management operations for a proactive approach to transmission to bring the economy back to growth,” added Nigam.
In a statement released today, Chandrajit Banerjee, Managing Director of CII, said: “While keeping key rates unchanged, the RBI’s decision to continue using its unconventional tools to keep yields stable under A large government borrowing program keeps borrowing costs contained. for the private sector. The announcement of GSAP 2.0 in the next quarter is one such step in this direction. In addition, measures such as providing a cash-at-source window worth Rs 15,000 crore for contact-intensive sectors, a special liquidity facility to SIDBI for on-lending and Refinancing and expanding borrower coverage under Resolution 2.0 should all bring relief to besieged sectors.
Given the impact of the second wave of COVID, the GDP growth forecast for FY22 has been reduced to 9.5% from 10.5% earlier, while MPC expects the inflation remains within the target range and at 5.1% for FY22. Satish Kumar, research analyst at Choice Broking, said some help has also been provided to banks amid the ongoing pandemic turmoil as they can restructure loan conditioning up to Rs 50 crore (the earlier limit was of Rs 25 crore). Additional liquidity support to SIDBI and liquidity available to contact intensive manufacturers to provide much needed assistance to the MSME sector. MPC also ensured adequate liquidity in the system and announced Rs1.2 lakh crore under G SAP 2.0 in the second quarter, he added.
The policy bodes well for financial assets as well as the real economy, growth and jobs, as RBI has once again affirmed its determination to maintain the right conditions to support sustainable growth, said Sandeep Bagla, CEO by Trust AMC. The policy is pragmatic, both progressive and preventive in its approach.
CPI inflation is well within the Reserve Bank of India’s target range, so at this point an accommodating policy with a standstill in key rates is welcome, said Sanjay Aggarwal, President of PHDCCI . He said the House expects an appropriate reduction in the repo rate in the next RBI review, as depressed demand needs to be rejuvenated with increased liquidity for businesses and individuals.
The MPC’s most important decision was on yield management, with the RBI emphasizing smooth management of liquidity and orderly Gsec borrowing, with a more vocal and defined GSAP, said Madhavi Arora, chief economist, Emkay Global. Financial Services. On the residual GSAP 1.0 of Rs400bn, around Rs100 billion will be allocated to SDLs, while the amount of GSAP 2.0 will be higher at Rs1.2tn for 2QFY21. This would further ensure a fall in sovereign risk premiums going forward in a high borrowing schedule this year, she said.
Regarding inflation, the CPI projection of an average of 5.1% for FY22 seems credible as rising oil and commodity prices put high pressure on prices. Although a healthy monsoon and higher agricultural production may contain food inflation somewhat, said Amar Ambani, senior president and head of research – Institutional stocks, Yes Securities. The announcement of another round of G-SAP and the delegation of various bond auctions clearly reflects the RBI’s position on government interest rates and borrowing costs.
“On the reverse repo rate, we have bottomed out as further rate cuts are completely ruled out given the prevailing negative real interest rates. With room for traditional monetary policy tight, we expect what the RBI continues to use its balance sheet to keep financial market conditions easy, ”Ambani said.
Welcoming the RBI’s continued political support for growth, Rajiv Podar, Chairman of the Indian Merchants Chamber, said: “With the first quarter ravaged by the second wave of COVID, growth forecasts have been revised downwards, rising from 10.5% to 9.5%. Meanwhile, inflation was revised slightly to 5.1% from 5.0% for the year, he said. The focus on liquidity by announcing a new 1.2 lakh crore GSAP 2.0 is a step in the right direction. It is important to note that the Governor of the RBI has shifted the liquidity objective from systemic distribution to equitable distribution.
Markets could be slightly disappointed with the latest tranche of GSAP 1.0, including SDL to the Rs 400 billion limit, especially after the announcement of a possible borrowing of Rs 1.5 trillion per center in the form of back-to-back loans to the states, Suvodeep said. Rakshit, Vice President and Senior Economist, Kotak Institutional Equities. However, this would be a policy in line with market expectations. The GDP growth estimate for FY2022 has been revised down to 9.5%, again broadly in line with consensus estimates. We expect GDP growth of 9%. The estimate of average inflation has been revised slightly upwards to 5.1%. We estimate the average CPI inflation at 4.9%. It stays well within the RBI’s comfort levels given the growing challenges, Rakshit said.
MSMEs had certain expectations. Binod Modi, head of strategy at Reliance Securities, said special liquidity of Rs 160 billion for SIDBI to support SMEs and increased liquidity support of Rs 150 billion to banks for offering loan term three years to the contact-intensive sector bode well for stimulating economic activity in the coming months. In addition, the purchase of additional bonds of Rs400bn on June 17, 21 under G-SAP 1.0 and Rs1.2 trillion in 2QFY22 under G-SAP 2.0 bodes well.