Central Bank likely to maintain focus on yield curve management
FIEO President Sharad Kumar Saraf said that status quo in the key rates by RBI on 4 June 2021 was a decision widely expected as it looked into the need for balancing growth and inflation particularly as hike in global import prices of commodities will continue to push inflationary pressures.
Saraf agreed with the RBI’s assessment that enhanced and targeted policy support are required for exports and it is opportune time now to give further policy push by focusing on quality and scalability.
He said that scalability could be attempted only if there are adequate profits in exports so that the same may be ploughed back in expansion and upgradation.
However, at present the profit margins have been squeezed due to high input prices without corresponding hike in prices of exports and sky rocketing freight costs.
He urged that a stable policy framework may be provided by notifying RoDTEP Rates, releasing MEIS and SEIS rates, extending Interest Equalisation Benefits and providing non fiscal facilitation.
FIEO President thanked RBI for concurring with FIEO’s suggestion and expanding the coverage of borrowers under the Resolution Framework 2.0 scheme by enhancing the maximum aggregate exposure threshold from ?25 crore to ?50 crore for MSMEs, non-MSME small businesses.
However, he urged RBI and Government to extend an additional 10% credit facility, as made available under ECLGS 1.0 to ECLGS 2.0 also for the benefit of MSME units besides others.
The RBI kept status quo in the key rates following its Monetary Policy meeting on 4 June 2021.
The Central Bank is likely to maintain its focus both on yield curve management, as well as the ample and equitable distribution of liquidity as India battles the Covid crisis, said N Sivaraman, MD & Group CEO, ICRA Limited.
“Managing the yield curve is important for market stability and to enable borrowers to make the choice of appropriate maturity,” he said in comments on the latest MPC decision to keep the rates.
The provision of on-tap liquidity for contact intensive sectors, additional funds for SIDBI and the enhancement in the exposure levels to Rs.50 crore for the Resolution Framework 2.0 are all welcome, given the presence of several smaller and less formal entities, which have been disproportionately affected by the pandemic.
Fundamental factors such as the need for fiscal support amidst already high sovereign borrowings, and rising crude oil prices are likely to periodically make the bond markets jittery.
“As a result, we may continue to see cancellations and devolvements in some tenors in the weekly auctions, especially with 6.0% likely to remain the Central Bank’s desired cap for the 10-year G-sec,” said Sivaraman.
The RBI keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4.0 per cent.
Consequently, the reverse repo rate under the LAF remains unchanged at 3.35 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 4.25 per cent.
The MPC also decided 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.
These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.
Since the Monetary Policy Committee’s (MPC) meeting in April, the global economic recovery has been gaining momentum, driven mainly by major advanced economies (AEs) and powered by massive vaccination programmes and stimulus packages, said RBI.
“Activity remains uneven in major emerging market economies (EMEs), with downside risks from renewed waves of infections due to contagious mutants of the virus and the relatively slow progress in vaccination.
“World merchandise trade continues to recover as external demand resumes, though elevated freight rates and container dislocations are emerging as constraints. CPI inflation is firming up in most AEs, driven by release of pent-up demand, elevated input prices and unfavourable base effects.
“Inflation in major EMEs has been generally close to or above official targets in recent months, pushed up by the sustained rise in global food and commodity prices. Global financial conditions remain benign,” it noted. #economy #banking #rates #exports /fiinews.com
