Industry welcomes RBI’s decision on Repo Rate
FICCI has called for a Government stimulus to give a thrust to consumption and boost the economy which is picking up despite uncertainties created by the ongoing COVID-19 pandemic.
“FICCI believes that it is important that a stimulus is provided by the government to give a thrust to consumption. The timing of such measures will be apt at this juncture as the festive season is about to begin,” said its President Uday Shankar, noting an uptick on the economic front.
Commenting on the monetary policy by the RBI on 6 Aug 2021, Shankar said, “The Central Bank’s indication yet again to continue with the accommodative stance, until necessary, to revive growth is encouraging. This is especially comforting when there was an expectation about the normalization of the monetary policy. The Central Bank has thoughtfully navigated the monetary policy through the pandemic. We are confident that the same thoughtfulness will continue in the future especially in view of an anticipated third wave and the continuing softness in the economy.”
FICCI also welcomes the announcement on the extension of the on tap TLTRO Scheme until 31 December 2021, and the extension of the period of relaxation for banks to avail funds under the marginal standing facility by dipping into the Statutory Liquidity Ratio. However, the outreach of the TLTRO scheme has been very limited especially in case of NBFCs.
“Also, the extension of deadline by six months to the meet the financial parameter requirements under the Resolution Framework 1.0 announced last year comes as a respite. However, given the way the COVID situation has evolved, some of the deeply stressed sectors may need a longer time period to be able to meet the financial parameters.
“We also feel that for such sectors the extant provisions of the RBI circular should be extended for one more year with invocation for such Resolution being allowed no later than 31 Dec 2021, and resolution plan implementation to be completed by 30 June 2022,” said Shankar.
“In addition, announcements pertaining to export credit in foreign currency and restructuring of derivative contracts amid the circumstance of transition away from the London Interbank Offered Rate are welcome. This is a landmark change that will have an impact on businesses throughout the world. We will look forward to further guidance on this from the Central Bank,” said Shankar.
Other banking executives have also shared their supportive views on RBI’s latest policy.
Rajeev Radhakrishnan, CIO – Fixed Income, SBI Mutual Fund, said “A tweak in the quantum of liquidity absorbed under the 14D VRRR probably signals the first step towards the process of normalization of excess liquidity. At the same time, the policy guidance remains accommodative given the focus on revival of growth. A dissent in the MPC with respect to maintaining the accommodative stance is probably the other take away.
“We expect this debate to shape the MPC decisions going forward. Very clearly even as prioritization of growth revival remains the preponderant objective, the RBI would be mindful of the evolving CPI trajectory, the persistence as well as the shifting drivers of higher inflation across various segments and also the likely shift in policy by major developed markets. This probably warrants more incremental actions in a gradual manner going forward both in the quantum and tenor of VRRR (Variable Reverse Repo Rate).”
Avnish Jain, Head – Fixed Income, Canara Robeco Asset Management Company, added, “The policy was on expected lines with the Monetary Policy Committee (MPC) holding fire, and maintaining status quo on rates with a unanimous decision. The stance was also maintained at “accommodative”, albeit with one member expressing reservations on continuing with stance in wake of persistently high inflation.”
RBI Governor highlighted reasons like supply disruptions, elevated logistic costs, high global commodity prices and high local fuel taxes for current inflation trend.
He pointed to moderation on core inflation in recent months as sign of comfort. Nevertheless, the RBI raised the CPI inflation target for FY22 to 5.7% from 5.1%, reflecting higher input prices. CPI inflation for next year is projected lower at 5.1% for FY2023.
Growth projections were maintained at 9.5% for FY2022. On liquidity front, RBI is increasing the VRRR auctions from current Rs.2 lakh crore to Rs.4 lakh crore by end of September, increasing the amount by Rs.50,000 crore every fortnight. This is to take care of excess durable liquidity in the system which is currently close to Rs.10 lakh crore.
The MPC seems to be taking a leaf out of global Central bank’s playbook wherein the major central banks are comfortable running over inflation targets temporarily, citing the current inflation trajectories, in their own respective countries, as transitory. Despite high inflation prints in countries like the US, UK and EU, central banks have stuck to their guns and continue with near zero rates and bond buying programmes. The RBI believes similarly that current inflation trend in transitory and should trend lower in rest of FY2022.
“RBI’s continued accommodative stance and policy measures have spurred the economic revival. The pragmatic view to higher inflation prints and the provision of ample system liquidity, have resulted in significant monetary transmission and this has benefited borrowers. It is prudent that RBI has decided to sterilise a part of the surplus liquidity through Variable rate reverse repo auctions,” said Zarin Daruwala, Cluster CEO, India and South Asia markets (Bangladesh, Nepal and Sri Lanka), Standard Chartered Bank.
“The three-month extension to the on-tap TLTRO will aid stressed/NBFC sectors by way of a liquidity backstop. Similarly, the three-month extension to the MSF limit will provide liquidity headroom to banks. Further, the deadline for achievement of financial parameters by the 26 stressed sectors under the resolution framework 1.0, has also been extended by six months.
“There was more relief for customers and banks by way of flexibility in restructuring of LIBOR based derivative contracts,” noted Daruwala.
Anuj Puri, Chairman – ANAROCK Property Consultants, “Had it not been for the pandemic, the RBI could have taken a different stance for the benchmark rates today. However, the spectre of inflation in the country looms too large, prompting the RBI – as expected – to keep the repo rates unchanged at 4% and reverse repo rate at 3.35%.”
This is the seventh consecutive time that the RBI has maintained status quo, largely on account of the ongoing COVID-19 uncertainties.
“On the upside, the RBI did confirm that economic activity is reviving with the ebbing of COVID-19 in most states across the country. Also, the real GDP forecast for the FY 2021-22 remains at 9.5% in the wake of the vaccination drive that is in full swing in India. All this is positive for the residential market, which has strong correlations to the overall state of the economy,” said Puri.
The unchanged repo rate regime works well for home loan borrowers as the floating retail loan rates, which is directly linked to external benchmark repo rates, have been at the lowest level in the last two decades.
The continuation of this low interest rate regime supports the environment of affordability which has become the new hallmark of the housing market – during the pandemic, and even before, he said. #banking #investment #economy /fiinews.com
