Analysts Decode What RBI Monetary Policy Means For Markets, Economy, Bond Yields

The Reserve Bank of India (RBI) saved rates of interest regular at file lows and reiterated its dedication to holding coverage accommodative as a second wave of COVID-19 infections threatens to derail the nation’s financial restoration. The RBI on Friday held the repo price, its key lending price, at 4 per cent and saved the reverse repo price, the borrowing price, unchanged at 3.35 per cent. (Also Read: RBI Monetary Policy Highlights: Lending Rates Unchanged, Growth Projected At 9.5% )

In a Reuters ballot, all 51 economists surveyed had anticipated the RBI’s financial coverage committee (MPC) to go away charges unchanged as Asia’s third-largest economic system grapples with varied state lockdowns.

Gaurav Garg, Head Of Research, Capitalvia Global Research, Mumbai

“The cause of concern for investors now is inflation, which seems to outweigh the benefits of cheaper credit, as inflation and the pandemic are expected to impact the real income and purchasing power of end-users, thereby, impacting the Q1 numbers of FY 2021-2022 for corporate India.”
 

Shashank Mendiratta, Economist, Ibm, New Delhi

“On growth, the central bank reduced its GDP forecast by 100 bps to 9.5%, due to increased spread of COVID-19, lockdowns, and moderation in many high-frequency sentiment measures.

“The RBI additionally raised its inflation projections barely on account of upside dangers emanating from the second wave. 

“However, given the current level of output gap and demand-side consideration in the economy, we do not anticipate any change in current policy settings for the rest of 2021. At the same time, we expect the central bank to continue to focus on liquidity measures to mitigate the impact of the pandemic.”  
 

Madhavi Arora, Lead Economist, Emkay Global Financial Services, Mumbai

“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, whereas we don’t see any motion on the coverage price entrance within the coming months, we’re poised to see a extra accountable and action-oriented RBI forward. We reckon whilst yields might inch up progressively and orderly, the RBI will proceed to try fixing skewed yield and keep its choice for curve flattening (with GSAPs and OMOs). We see web OMO + GSAP purchases to the tune of 4.5 trillion rupees ($61.64 billion) to five trillion rupees in FY22.”
 

Yuvika Singhal, Economist, Quanteco Research, Delhi

“The RBI’s reassurance of liquidity to markets with the announcement of a 3rd tranche of GSAP 1.0 (G-Sec Acquisition Programme) and the subsequent spherical of GSAP 2.0 of 1.2 trillion rupees was on anticipated traces. Inclusion of state growth loans (SDLs) within the GSAP programme, nonetheless, is a welcome step and prone to curb the strain on SDL spreads (which seems considerably elevated at 75-80 bps at present). 

“Among other support measures, liquidity window for contact-intensive services sectors comes as a much-needed lifeline to mitigate COVID-induced impact.”
 

Tanvee Gupta Jain, Chief India Economist, Ubs, Mumbai

“The monetary stance has been accommodative in the past year and the policy (repo) rate is already at an all-time low of 4%. However, despite negative real rates and record-low mortgage rates, credit impulse in the system has continued to remain weak.

“We anticipate the RBI to possible delay coverage normalisation till subsequent 12 months (March 2022 quarter) and to maintain financing circumstances straightforward within the interim to help financial restoration and make sure the clean functioning of the federal government’s borrowing calendar.”    
 

Deepthi Mathew, Economist, Geojit Financial Services, Kochi

“The announcement of G-SAP 2.0 at 1.2 trillion rupees  ($16.44 billion) for Q2FY22 reveals the RBI’s dedication to holding the bond yields in verify. The inclusion of SDL on G-SAP would help state authorities borrowings from the market.”
 

Sakshi Gupta, Senior Economist, Hdfc Bank, Gurugram

“We anticipate Q1 progress at 15-16% as rural demand takes successful and provide chain disruptions weigh on financial exercise. 

“The RBI revised up its inflation forecast to 5.1%. We see further upside risks to this forecast as input cost pressures continue to rise and feed into retail prices over the coming months. The announcement and increase in GSAP 2.0 amount is likely to bring further relief for the bond market. Inclusion of SDLs in the GSAP is likely to provide some relief for states borrowing costs with states under increased fiscal pressure due to the second wave. 

“We anticipate 10-year yield at 5.95-6.05% for the approaching months.”
 

Prithviraj Srinivas, Chief Economist, Axis Capital, Mumbai

“The central financial institution continues to keep up a conservative stance on CPI (5.1% for FY22 vs. 4.9% three-quarter common beforehand). To deal with possible pressures on home rates of interest, the RBI highlighted presence of $600 billion international alternate reserves as a deterrent forward of an important FOMC assembly and gave predictable indications on RBI bond-buying programme, G-SAP 2.0.

“In addition, there were other credit facilitation measures for severely impacted high-contact services sectors.”
 

Kunal Kundu, India Economist, Societe Generale, Bengaluru

“The RBI scaled down its rather optimistic growth forecast for FY22 from 10.5% to 9.5%, in line with the worries expressed by them in several forums earlier as well as in their annual report about growth momentum hitting a roadblock, especially given the weakened pace of vaccination, which lies at the heart of recovery.

“In reality, we do anticipate additional downward revision going ahead as increasingly high-frequency knowledge is anticipated to exhibit ranges of exercise that will be unable to justify as excessive an actual progress as 9.5%. 

“Not surprisingly, they assured that they would remain accommodative for as long as the economy needs and would ensure adequate liquidity in the system. That said, we believe that expecting the RBI to do all the heavy lifting for an economy suffering from massive demand destruction, is rather unfair on the central bank. Under the current circumstance, monetary policy ought to play a supporting role to a more expansionary fiscal stance especially in the form of fiscal support to households suffering from loss of jobs and income.”