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What RBI’s coverage actions imply for financial system, demand, inventory markets, and bond yields; consultants decode

The Reserve Bank of India’s Monetary Policy Committee immediately determined to keep up the established order and maintain its coverage stance accommodative to facilitate progress for the covid-hit Indian financial system.

The Reserve Bank of India’s Monetary Policy Committee immediately determined to keep up the established order and maintain its coverage stance accommodative to facilitate progress for the covid-hit Indian financial system. All MPC members voted unanimously to maintain the repo fee at 4% and the reverse repo fee at 3.35% within the second bi-monthly coverage overview of this fiscal 12 months. Apart from the coverage charges, the central financial institution has stepped up efforts to keep up sufficient liquidity within the system because it introduced GSAP 2.zero and a particular liquidity window for sure sectors. RBI has as soon as once more assured to maintain coverage stance supportive of progress whereas it trimmed GDP forecast to 9.5% for the present monetary 12 months.

What do economists make of immediately’s developments?

Anagha Deodhar – Chief Economist, ICICI Securities: “The MPC upped inflation forecast for the higher a part of FY22 by 20-30bps and lowered GDP progress forecast sharply to 9.5%, primarily on account of decrease than anticipated progress in H1FY22. This reveals that the committee’s precedence is supporting progress restoration. The RBI additionally introduced an on-tap liquidity window of Rs 15,000 crore for contact-intensive sectors, extra liquidity facility of Rs 16,000 crore to SIDBI. Moreover, it introduced the acquisition of presidency securities price Rs 1.2 lakh crore below GSAP 2.zero in Q2FY22. All these measures collectively are more likely to maintain monetary circumstances within the financial system benign and assist restoration.”

Indranil Pan, Chief Economist – YES BANK: “Given the current evolution of the growth-inflation dynamics, there was absolutely no scope for the RBI to change its policy rates. Instead, the RBI endeavoured to keep the system fluid with adequate liquidity and also targeting rescue operations for the most stressed sectors in the economy. We think that over the current FY, the RBI will not have any leeway to change its interest rates to provide support to the economy. Instead, it will do whatever necessary to push credit and liquidity to the stressed areas of the economy so as to prevent erosion of the supply chains in the economy.”

Prithviraj Srinivas, Chief Economist, Axis Capital: “To tackle likely pressures on domestic interest rates, the RBI highlighted presence of USD 600 bn FX reserves as a deterrent ahead of crucial FOMC meeting and gave predictable indications on RBI bond-buying program, G-SAP 2.0. In addition, there were other credit facilitation measures for severely impacted high contact services sectors. Overall today’s measures and communication by RBI bolster current accommodative policy stance.”

Barclays India Economists: “In its statement, the MPC acknowledged the growing economic fallout of the second COVID wave, and downgraded its growth projections by 100bp, from 10.5% earlier, to 9.5% now. The press statement noted high levels of uncertainty, as regards the spread of COVID in rural areas and pressure on urban health infrastructure, that may pose some downside risks to the growth outlook going forward.”

What are market consultants speaking about?

Lakshmi Iyer, CIO (Debt) & Head Products, Kotak Mahindra AMC: “The RBI MPC was about G & G – Growth forecasts for FY22 were lowered by 1% while GSAP amount for Q2FY22 was increased. While CPI inflation forecasts have been increased, immediate demand-side pressures may not be a concern due to the pandemic. The inclusion of SDL in GSAP is a good move to help ease some pressure on State loans. Bond yields are likely to move in a tight range and oscillate between auction supply and GSAP led demand.”

Vikas Garg- Head Fixed Income, Invesco Mutual Fund: “Announcement of GSAP 2.0 for 2QFY22 reflects the RBI’s continued support to ensure the completion of record-high G-Sec borrowing program in a non-disruptive way, although the amount of Rs 1.2 lakh cr was a tad lower than the market expectations. Additionally, the regular use of Open Market Purchase Operations & Operating Twists is in line of RBI’s endeavour to ensure orderly evolution of the yield curve.”

Amit Tripathi, CIO- Fixed Income, Nippon India Mutual Fund: “Any extreme views on market direction need to be avoided. Our overall portfolio allocation would reflect a neutral bias on rates. The core portfolios of most open-ended debt schemes will operate slightly below the midpoints of their duration mandates. We would recommend continued discipline in investor allocations, driven primarily by their holding period considerations.”

Dhiraj Relli, MD&CEO, HDFC securities: “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.”

Nitin Sharma, Head of Research – India, Fidelity International: “The downtick on anticipated GDP progress was anticipated and supported RBI’s accommodative stance whereas being watchful of inflation build up. On the latter, there are a number of forces at work, together with widespread momentary provide disruptions. However, with a gradual reopening and a probable good Monsoon, a number of the noise in knowledge ought to go away, giving RBI extra management. With developed economies usually near attaining the edge stage of vaccinations, the worldwide financial backdrop might be beneficial and support restoration for India as properly.”

Jimeet Modi, Founder & CEO Samco Group: “India’s accommodative stance continues to remain in line with global peers such as Fed and ECB and this times policy was also aligned with market expectations. The spectrum of forecasts both in terms of GDP and inflation were balanced out and remained more or less on the optimistic side. The RBI has indeed given a helping hand, in whatever way possible to boost liquidity for MSMEs, the hardest hit space in this pandemic.”

Do you recognize What is Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget, Customs Duty? FE Knowledge Desk explains every of those and extra intimately at Financial Express Explained. Also get Live BSE/NSE Stock Prices, newest NAV of Mutual Funds, Best fairness funds, Top Gainers, Top Losers on Financial Express. Don’t neglect to attempt our free Income Tax Calculator device.

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