Indian economy appears capable of sustaining geopolitical conditions, says Dr Sakthivel
The Federation of Indian Export Organizations (FIEO) has welcomed the RBI’s decision of increasing the repo rate by 50 basis points to 4.90%, at a time when the global economies including India is reeling under inflationary pressures.
However, at the same time RBI should ensure that it neither affects the credit flow nor the interest burden on MSMEs especially exporters and, if required, enhance the Interest Equalisation Scheme may to insulate against any rate hike, said FIEO President Dr A Sakthivel.
The FIEO Chief reiterated that as the Indian economy appears capable of sustaining such geopolitical conditions, but noted that the decision of hike in repo rate along with the Standing Deposit Facility (SDF) to 4.65%, the Marginal Standing Facility (MSF) and the Bank Rate to 5.15%, will further help in reducing pressure on demand front.
This, he said, will help in ensuring adequate liquidity in the system to meet the productive requirements of the economy in support of credit offtake growth.
The MPC unanimously agreed to hike the repo rate by 50bps to 4.90% and continuing with stance of “remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth,” said Avnish Jain – Head Fixed Income, Canara Robeco Asset Management Company Limited.
The MPC did not make changes to CRR, which some section of market participants had expected.
The MPC retained the GDP forecast at 7.2% for FY2023 whilst increasing the inflation forecast to 6.7% for FY2023 (from 5.7% in April 22 policy). This is in light of increased pressure on commodities from geo-political tensions as well as supply disruptions in aftermath of pandemic closures.
The MPC now expects that inflation to fall to below the MPC’s mandate of 6%, only in 4QFY2023.
While inflation concerns remain at the forefront, RBI took comfort from recent government measures and some moderation in inflation expectations, according to Jain.
“The MPC’s unanimous vote on the 50-basis points repo rate hike is a clear indication of its resolve to rein in inflation,” said Zarin Daruwala, Cluster CEO, India and South Asia markets (Bangladesh, Nepal and Sri Lanka), Standard Chartered Bank.
“With this hike, the operating rate has moved up by 155bp to 4.9% over the past few months. While the MPC has prioritised policy and withdrawal of accommodation, its steps are likely to be measured as the domestic economy recovers. It was heartening to note that capacity utilisation has improved to 74.5% and that GDP growth has been retained at 7.2%.”
“Linking of credit cards to UPI is an ingenious move that will further augment India’s world class payments systems, he believes.
“It is likely to reduce transaction costs and increase acceptability, thereby aiding the Government’s goal of financial inclusion by making consumer credit available to a wider population.
“Allowing rural co-operative banks to lend to the residential housing sector as well as hiking home loan lending limits for all Co-op banks, will be a tailwind for affordable housing.
“Introduction of margin requirements for non-centrally cleared derivative transactions will help reduce contagion risk in the banking system,” said Daruwala. fiinews.com
