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“Monetary Policy Continues To Stay Dovish”: Economists As RBI Holds Rates

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The Reserve Bank of India (RBI) left key rates of interest unchanged on Friday as broadly anticipated, whereas retaining an accommodative financial coverage stance to help the coronavirus-hit economic system. The RBI sees India’s actual GDP contracting by 9.5 per cent within the ongoing fiscal yr, and financial progress solely turning constructive within the last January-March quarter, Governor Shaktikanta Das stated in a webcast after a gathering of the financial coverage committee (MPC). The MPC, as anticipated, stored the repo charge, its key lending charge, at 4.zero per cent, whereas the reverse repo charge or the important thing borrowing charge stayed at 3.35 per cent. The central financial institution has slashed the repo charge by 115 foundation factors (bps) since late March.

JOSEPH THOMAS, HEAD OF RESEARCH, EMKAY WEALTH MANAGEMENT, MUMBAI
“The RBI policy is on expected lines, as it keeps the base rate unchanged and the policy stance accommodative. The probability of RBI cutting rates in the near future remains quite low in view of the higher inflationary pressures.”

“RBI views the current spike in prices a “transient hump”, as price level may moderate in Q4. But with a huge government borrowing programme ahead, the RBI will continue with the liquidity support. It is actually the liquidity that has been helping both the debt and the equity markets. There is always a constituency of market participants who want rate cuts. They will be certainly disappointed.”

“The reports which had come up last June that the rate cut cycle is coming to an end may gain more prominence now. In our view, it is not the rate cuts but the liquidity provision that matters today, when the market rates on short term bank and corporate papers have touched low single digits.”

“The positioning of portfolios should continue on the same lines with an accent on the short and mid sector. The expected GDP contraction for FY21 is placed at 9.50%, which is also quite close to most of the market estimates, with the Q4 number must likely turning positive number.”

ANAGHA DEODHAR, ECONOMIST, ICICI SECURITIES, MUMBAI

“The unanimous vote to keep repo rate unchanged is in line with our expectations. However, the RBI again used a lot of tools outside the purview of MPC to provide strong support to the economy.

“We count on ‘on faucet TLTRO’ to enhance entry and decrease price of credit score for focused sectors. Similarly, rationalisation of danger weighs on housing loans might help the troubled actual property sector.

“However, the biggest positive announcement for me in this policy is OMOs for state development loans. This could keep a lid on spreads on SDLs, thereby, providing support to states finances when they are in dire need.”

SHILAN SHAH, SENIOR INDIA ECONOMIST, CAPITAL ECONOMICS, SINGAPORE

“The main reason for inaction was the stickiness of inflation. We think that inflation will drop sharply over the coming months as food inflation eases and the collapse in demand eventually offsets supply constraints – a view also shared by the RBI.

“Linked to this, the outlook for financial progress is bleak. New COVID-19 instances in India have dropped over the previous couple of weeks however stay, by far, the best on this planet. Containment measures might want to keep in place for a very long time but. The RBI itself thinks the economic system will contract by 9.5% this fiscal yr. All of this augurs for additional coverage loosening.

“We think there is scope for another 50bp of rate cuts, which is a more dovish view than currently discounted in financial markets.”

VEENA SIVARAMAKRISHNAN, PARTNER, SHARDUL AMARCHAND MANGALDAS & CO, MUMBAI

“For the first time since COVID-19, the governor’s statement has a sense of tides turning. While the real impact is yet to be seen, the “on faucet” TLTRO and easing of contraction in certain sectors seem to indicate ‘winds of change’.

“The RBI has (been) proactive in assembly the calls for of the economic system. While the curiosity moratorium saga continues to play out within the courts, the persevering with reduction by the RBI will definitely ease short-term liquidity pressures.”

PRITHVIRAJ SRINIVAS, CHIEF ECONOMIST, AXIS CAPITAL, MUMBAI

“The RBI has offered liquidity assurance to banks and bond markets, and most crucially, a benign evaluation of inflation outlook. The central financial institution expects worth pressures created by supply-side points to dissipate as provide chains are restored.

“In addition, comfortable outlook about food supply gives the RBI confidence to look through current high inflation and continue with an accommodative stance. This is a status quo policy with a dovish tilt, which should assuage markets and put a lid on upside risks to market interest rates.”

SHASHANK MENDIRATTA, ECONOMIST, IBM, NEW DELHI

“Today’s decision to hold the rates was widely expected given that the inflation has been above tolerance level for several months. However, the MPC highlighted that factors driving inflation are largely transitory and as such should dissipate gradually.”

“While rate setting was unchanged, the central bank also emphasised policy support in other ways such as liquidity support for financial markets, regulatory measures to augment flow of credit, etc.”

“Overall, the tone of the policy was dovish, and we expect central bank to easy policy rates in Q4FY21.”

SAKSHI GUPTA, SENIOR ECONOMIST, HDFC BANK, GURUGRAM

“The RBI kept its policy rate unchanged at 4%, however, the tone was significantly dovish. This implies there is room for further rate cuts (possibly 50bps) once inflation cools off. This would be justified by the sharp contraction in growth this year and the expected moderation in inflation going into Q4 FY21.

“We count on progress to contract by 10% in FY21 and inflation to ease to 4.5% by December and three.5-4% by March 2021.

“More importantly, the RBI announced a number of measures such as open market operations (OMOs) for state development loans (SDLs) to provide liquidity and keep risk-free rates contained.”

LINCOLN BENNET RODRIGUES, CHAIRMAN, BENNET & BERNARD GROUP, GOA

“Any further rate cut at this point of time would have definitely added to the positive sentiment. However, at the same time, it is imperative for banks to reduce lending rates as this is the need of the hour to further see a boost in the real estate sector.”

KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU

“An inflation rate way beyond the upper range of the central bank’s tolerance range clearly meant that the RBI was in no position to provide additional monetary policy stimulus through the rate cut channel to help the economy that is facing its worst contraction ever.

“Not surprisingly although, the RBI has maintained an accommodative stance implying that charge lower could be across the nook on the slightest trace of inflation coming beneath management.

“Not only has the headline CPI data got skewed because of the imputed values for March and April, but the trajectory of both the WPI and the GDP deflator moving in a direction virtually opposite to that of retail inflation underscores the data anomaly.

“We proceed to count on a further 50bp charge lower by the RBI although the timing stays a bit iffy.”

SUMAN CHOWDHURY, CHIEF ANALYTICAL OFFICER, ACUITE RATINGS & RESEARCH LTD, MUMBAI

“In the context of elevated issues on larger bond yields and better authorities borrowings, the RBI has given out a powerful message that it’ll handle yields in an aggressive method via bigger OMOs which may also cowl SDLs. This together with an expectation of a moderation in inflation over the following few months, is anticipated to maintain 10-year authorities safety yields at sub-6% ranges and in addition facilitate larger borrowings by the states within the close to time period.”

“Additionally, a number of regulatory measures equivalent to tweaks on danger weights for residence loans with larger fairness contribution, improve of publicity limits to particular person retail and small enterprise loans and extension of co-origination fashions to cowl all NBFCs and HFCs will assist to incentivise larger lending to retail and SME sectors, thereby pushing the presently low credit score progress.”

SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI

“The charge resolution was totally on anticipated traces as inflation remains to be very excessive. Inflation is anticipated to ease considerably in December. The Reserve Bank of India is anticipated to chop charges both within the subsequent coverage meet or the one after that. RBI isn’t completed with charge cuts as but. Up to a different 50 foundation factors lower is probably going in the course of the present cyle.”

RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCIAL HOLDINGS, MUMBAI

“Policy continues to remain dovish whilst the general temper has modified from COVID-19 containment to revival.”

“By giving macroeconomic projections, the MPC has set the context of future coverage strikes. More transparency on open market operations (OMO), inclusion of state bonds in OMOs and extension of HTM limits will help the absorption of enormous sized authorities market borrowings programme.”

“The new MPC workforce seems to be on the identical web page.”

AMIT SHAH, HEAD OF INDIA RESEARCH, BNP PARIBAS, MUMBAI

“Overall, we see the MPC motion as in-line with constructive commentary, particularly the on faucet TLTRO which might guarantee enhanced liquidity.”

“We assume the RBI has been very prudent to date in the way in which they’ve dealt with the financial contraction with first beginning with offering moratorium after which selective restructuring of loans and easing financial stance when it was wanted.”

“I feel the RBI had anticipated that India’s battle with COVID-19 could be a protracted drawn one and therefore they’ve been selective in utilizing financial coverage as a instrument in order that they’ve some buffer that they will use within the occasion there a powerful second or third wave in India.”



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