RBI Monetary Policy: Reactions from Industry Experts

This would be the sixth consecutive time where RBI kept the benchmark interest rate unchanged.

Jun 04, 2021 12:06 IST India Infoline News Service

The Reserve Bank of India (RBI) maintained yet another 'status quo' in its policy repo rate at 4%. The central bank has presented the outcome of the second bi-monthly monetary policy of India for FY22. This would be the sixth consecutive time where RBI kept the benchmark interest rate unchanged.

The six-member monetary policy committee (MPC) voted for an accommodative stance due to headwinds in the economy due to the resurgence of the Covid-19 pandemic and rising inflation pressure.

Mr. Sanjay Aggarwal, President at PHDCCI

"CPI inflation is very much in the target range of Reserve Bank of India, so at this juncture, accommodative policy with a status quo in the key policy rates is welcome. Expecting an appropriate cut in repo rate in the next review by RBI as depressed demand has to be rejuvenated with enhanced liquidity for businesses and people."

Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services

Monetary policy came completely on expected lines: no change in policy rates, a continuation of the accommodative policy stance and 1% downward revision in FY GDP growth rate by 100bp. Governor Das has reiterated that the central bank's priority now is to support growth. That's shy the MPC has stated that "the accommodative stance will continue as long as necessary" even while raising the CPI inflation forecast to 5.1% for FY 22 GDP growth rate by 100 bp. The announcement of G-SAP 2.0 to the tune of Rs 1.2 lakh crores will ensure adequate liquidity in the system. On tap liquidity window for contact intensive sectors is an unconventional measure to mitigate the sufferings of segments like hotels, restaurants, tourism, bus operators, beauty parlours, saloons etc. Upward revision of inflation rate will raise bond yields marginally in the short run.

Mr. Binod Modi, Head strategy at Reliance Securities

MPC meeting outcome was mostly in-line with expectations as RBI, in addition to maintaining status quo about policy rates, focused upon ensuring sufficient liquidity in the system and supported MSMEs and corporate hit in second wave. Special liquidity of Rs160bn for SIDBI to support SMEs and increased on-tab liquidity support of Rs150bn to banks for offering three year’s tenor of loan to contact-intensive sector augur well to spur economic activities in coming months. Further, incremental bond purchase of Rs400bn on 17th June’21 under G-SAP 1.0 and Rs1.2 trillion in 2QFY22 under G-SAP 2.0 augur well. In our view, reduction in real GDP target for FY22E from 10.5% to 9.5% was mostly on expected line. However, moderate increase in inflation target could be a near term overhang, but it remains under RBI’s reference range.

Mr. Annuj Goel, Managing Director, Goel Ganga Developments: 

"As per our expectations, the Reserve Bank of India (RBI) has retained the benchmark interest rate at the existing levels at its monetary policy review as MPC voted to keep accommodative stance and keeping the interest rate unchanged. We welcome this move by RBI's rate-setting panel MPC of retaining benchmark interest rate. It's relief from the Central bank in the wake of inflation and with regard to the second wave of the COVID-19 pandemic."

Mr. Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory

"The RBI and especially the MPC are to be commended for maintaining an accommodative stance for the sixth consecutive time now. Their approach towards tackling the situation created by the pandemic and steps taken to help revive the economy will go down in history as being one of the finest. Keeping in mind the disastrous COVID-19 second wave, a slight reduction in the key rates would have been widely celebrated. The reduction would have helped spur growth in demand for real estate assets, which has been severely hit as a result of the pandemic and subsequent lockdowns. Apart from the reduction in stamp duty charges in some parts of the country, the all-time low housing loan rates have given the much-required fillip to sales activity in the last couple of quarters. With the temporary reduction in transaction costs being withdrawn, in states like Maharashtra, the expectation amongst stakeholders of the industry is that the banks should now further sweeten the lending rates, at least till such time that the economy gets back to the pre-COVID levels."

Honeyy Katiyal, Founder of Investors Clinic

The economic activities have  been impacted by the second wave of Covid, followed by the lockdown. There is also a need to enhance liquidity in the system, especially for the industries which got impacted.

In real estate; as the apex bank has kept the rates unchanged, the overall positive economic indicators shall further help home buyers. Real estate industry's perennial hope is fixed on lower interest rates; the prevailing low home loan rates are already enticing for homebuyers. With inflation set to be high and economic recovery slow due to surge of Covid, residential real estate will continue to attract investment as it is a safe-haven asset. And as the second wave of covid effected the economy badly so it is expected that the government has to keep the rates constant for a longer period of time.

Mr.Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research

“On expected lines, MPC has unequivocally reaffirmed its accomodative stance and continued with the extended pause on rates in the June 2021 statement given the need to safeguard the nascent growth impulses in the face of strong headwinds from the second Covid wave. While taking cognizance of the impact of the stringent lockdowns announced in April-June, RBI remains fairly optimistic on the growth outlook for FY22 and has only downsized the GDP growth forecasts from 10.5% to 9.5%.

The central bank has taken note of the upside risks to inflation in a scenario of higher commodity prices and re-emergence of higher supply constraints amidst the current phase of lockdowns but continues to project benign inflationary figures for the next few quarters albeit at slightly higher levels of 10-20 bps as compared to the previous forecasts. In a way, this confirms our expectation that bringing back the growth impulses witnessed particularly in Q4FY21 is the primary focus of monetary policy over the near to medium term.

As part of its objective to ensure adequate liquidity, RBI has continued with its GSAP 1.0 programme for Q1FY22 with a scheduled Gsec purchase of Rs 40,000 Cr in June and importantly, taking it forward with GSAP 2.0 with the planned acquisition of another Rs 1.2 Lakh Cr in Q2FY22. Along with the use of other tools such as OMOs and Operation Twist, these announcements are a clear message to the market participants that RBI would like to provide necessary support and facilitate a slightly downward bias on the bond yields. One interesting development is the inclusion of SDLs in the GSAP scheme which will help to keep the costs of states’ additional borrowings down.

Another priority for RBI in its own words is “not only maintaining adequate systemic liquidity but also ensuring its distribution”. Accordingly, another on tap liquidity window of Rs. 15,000 Cr has been announced for banks to provide liquidity relief to the contact intensive sectors who continue to bear the brunt of the pandemic. Further, an additional Rs 16,000 Cr funding has been earmarked for SIDBI for lending to MSMEs, directly or indirectly over and above the quantum of Rs 50,000 Cr that was set aside for government financial institutions in the April policy. While the banks’ appetite to take additional exposure to the stressed sectors remains to be seen, RBI has attempted to create an incentive structure for directing lending to them. In order to provide further relief to the businesses hit by Covid 2.0, the newly announced restructuring window has been extended for all entities with outstanding credit of Rs 50 Cr.      

The decision to permit Regional Rural Banks (RRBs) to issue certificates of deposits (CDs) is also an important step in bringing these financial institutions in the mainstream.

Mr. Pritam Chivukula, Co-Founder & Director, Tridhaatu Realty, Hon. Secretary, CREDAI MCHI

"We thank the RBI for continuing with their accommodative stance. The second wave of the pandemic and intermittent lockdowns across major cities has led to economic uncertainties across the country. There is also uncertainty around the vaccination and the increasing input costs is having a catastrophic impact on the survival of few businesses. Therefore we urge the Central Government to address the deteriorating health of MSMEs and various other sectors which have been severely impacted by the second wave of the pandemic. The low interest rates have been a crucial factor in the revival of the demand in the real estate sector.  Looking at the record transactions in the previous quarters where the homebuyers took advantage of the stamp duty benefit before the March deadline, we urge the State Government too to reconsider their decision on the stamp duty waiver in interest of the homebuyers again."

Dr. Samantak Das, Chief Economist and Head Research & REIS, JLL

Reviving and sustaining growth has been the guiding philosophy of the monetary policy through the pandemic. RBI has reinforced it by keeping the policy rates unchanged. The policy stance is a logical step to support the actual GDP growth of 1.6% that was reflected in Q4 FY 2020-21. The forecast of normal monsoons is expected to result in agricultural sector growth and drive the rural demand. The incipient recovery in the global economy has also increased exports, which is expected to provide a fillip to the economy. However, the growth is likely to be impacted by the downside risks due to the after-effects of the second wave of the pandemic.

Recovery in residential real estate that was witnessed during January-March 2021 quarter was impacted by the lockdowns introduced to control the pandemic resurgence. Though the competitive mortgage rates are expected to provide long term support for sustained growth of real estate, overall economic recovery leading to job, and income growth will be contributing factors for housing demand. We believe that low home loan interest rates, realistic property pricing, the focus of developers on project completion and economic recovery will take the residential sales in all likelihood to better levels than 2020. 

Mr. Anuj Khetan, Director, Vijay Khetan Group

"Due to the second wave of COVID-19 and the lockdown restrictions imposed in various States, the monetary policy committee’s decision to keep key rates unchanged at 4% was on expected lines. This move is a much-appreciated step recognizing the role of the real estate sector in generating employment and economic activity. With the interest rates at a record low, the Government will continue taking affirmative measures as long as it is necessary to revive the economy and mitigate the impact of the second wave of the pandemic." 

Mr Anshuman Panwar, Co-Founder Creditas Solutions

"RBI has maintained its accommodative stance as expected by the market. In comparison to restructuring 1.0, more borrowers are applying for Restructuring 2.0. RBI’s move to expand the coverage of borrowers under Resolution Framework 2.0 by enhancing the overall exposure from INR 25 crores to INR 50 crores is expected to help a larger number of MSMEs, non-MSMEs and individuals who have taken business loans and this will reduce the delinquency rates. This is a huge relief to small business owners reeling under the stress caused due to the second wave of Covid. Further RBI has extended a fresh lease of life to the sector worst affected by the pandemic with a separate liquidity window of INR 15,000 crores especially for the contact intensive sector of Travel and Hospitality and allied services.”

Shravan Shetty, MD, Primus Partners

“Record forex reserves of ~$600 billion is providing both RBI and to an extent the government as well to push growth. The need now is for the government to step in with a fiscal stimulus given limited room for private investments providing the required push ”  Nilaya Varma, CEO, Primus Partners

“The RBI has kept its stance of looking at durable growth and also provided support the most impacted on-tap additional liquidity window for Rs 15,000 crore for contact-intensive sectors. Given the inflation is currently more supply driven than demand, we believe RBI focus on growth is right”

Mr. Pankaj Sharma, Chief Executive Officer (CEO), Religare Finvest Ltd

“The RBI has adopted a wait and watch strategy by adopting status quo on policy rates and this is on expected lines. At the same time, it has reiterated that growth remains a priority while the need for policy action from all sides to support business sentiment revival, including fiscal measures is warranted . It is now clear that RBI may be waiting for the second wave to abate (which it currently is showing the definite signs) and it is then expected to take action by further reducing policy rates to revive growth on a sustainable basis. At the same time, the central bank continues to assuage the markets by launching a host of measures to support growth and ensure adequate liquidity in the banking system. Further, RBI’s move to enhance the overall exposure from INR 25 crores to INR 50 crores under Resolution Framework 2.0 is expected to help more MSMEs, non-MSMEs and individuals who have taken loans but have been impacted by the pandemic. This will help bring down systemic risks in the banking system.”

Mr. Jimeet Modi, Founder & CEO Samco Group

Exactly a year ago, RBI had cut the repo rate down to 4% from 5.15%, pre-pandemic levels and the rates have remained unchanged till now. India’s accommodative stance continues to remain inline 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. Support to the contact intensive sectors is definitely a move in the right direction although the relief package could have been higher to hold the bottom of the pyramid from losing ground. Various other decisions in terms of opening the debt markets to FPIs and facilitating a Rs. 1.2 Lakh Cr in Q2FY22 for GSAP2.0 will aid to safeguard our economy from contraction and keep markets buoyant.

Dr. Alok Sheel, RBI Chair Professor in Macroeconomics at ICRIER - Indian Council for Research in International Economic Relations (ICRIER)

“As expected, the MPC has decided to keep policy rates on hold, while stating its intention to continue injecting more liquidity in financial markets, including buying government debt. Monetary policy was already very accommodative, with the real repo rate in negative territory. Despite inflationary pressures it seemed unlikely that the central bank would tighten policy as this could derail the recovery under way. The RBI does not expect CPI inflation in 2021-22 to exceed its upper target of 6%, so it understandably continues to focus on its secondary monetary policy target of stabilising the business cycle, which was already in serious trouble even before Covid-19. It may be observed that RBI’s accommodative stance long preceded the Covid downturn. In view of the second wave RBI has cut its growth forecast for 2021-22 from 10.5% to 9.5%.

RBI also feels that the fear of taper tantrums and associated capital outflows has receded for now, although it continues to be watchful and conduct two way interventions in the FE market to maintain stability.

In his last statement the Governor had indicated that the RBI was working in close cooperation with government, leading to some speculation regarding an associated fiscal package to boost growth. While there was no such reference in today’s statement, this does not diminish the fact that with the continuing overhang of bad debt clogging the transmission channels of monetary policy, fiscal policy remains by far the most potent game in town for getting the economy back on track.”

Mr. Bhushan Nemlekar, Director, Sumit Woods Limited

"The RBI's decision to maintain its accommodative stance was on the expected lines in light of the second wave of the pandemic causing the economic recovery to stumble. The prevailing low home loan rates are already enticing for homebuyers. It's high time the banks need to pass on the benefits to the homebuyers."

Churchil Bhatt, EVP & Debt Fund Manager, Kotak Mahindra Life Insurance Company

“The Monetary Policy Committee (MPC) has left the benchmark rates unchanged in its June 21 policy meeting, thereby prolonging its much needed support to the real economy. It has also decided to continue with its accommodative policy stance as long as necessary to revive growth on a durable basis. In light of the Covid 19 second wave, RBI has also revised down its GDP forecast to 9.5% for FY22, while its FY22 CPI forecast is at 5.1%. Risks to inflation remain balanced in RBI view. MPC is of the opinion that, in order to return to normalcy, economy needs continued support on all fiscal, monetary and sectoral front. MPC has also announced a host of targeted policy support measures to help sectors adversely affected by Covid second wave. On the bond market front, RBI re-emphasized its guidance on orderly evolution of Yield Curve with the announcement of INR 1.2 Trillion GSAP 2.0. We expect rates market to take comfort from continued RBI support. In light of the above, 10Y Benchmark Gsec should continue to trade in 5.90%-6.10% range in the near term.”

Shraddha Kedia-Agarwal - Director, Transcon Developers

"RBI maintaining status quo on key policy rates was expected given the inflationary concerns in recent months. The low interest rates for the last few months has already given a boost to the real estate sector upticking the demand in the last few quarters and enhancing the confidence of the homebuyers. The decision will help to sustain liquidity for some period as we are already witnessing the derailment of economic momentum due to the second wave of Covid-19 pandemic and lockdowns in different regions. It will also help in sustaining economic stability as well as keep the real estate sector stay afloat during these unprecedented times."

Ms. Pallavi Shrivastava, Co-founder, Progcap

“We welcome RBI’s restructuring scheme under resolution framework 2.0 as it offers the much-needed relief to select MSMEs, non MSMEs small businesses which have been impacted drastically in the second wave of Pandemic  The availment of this restructuring scheme will not only ensure smooth flow of liquidity, at reasonable costs but will also benefit the MSME’s in long run by restructuring the account without classifying it as an NPA. Further, it will act as an opportunity for lenders like us to grant surplus financial support that will empower small and medium businesses (SMBs) to progress without obstacles.”

Mr. Niraj Kumar_ CIO_ Future Generali India Life Insurance Company Ltd

“With Today's Policy verdict, RBI continues to showcase its unflinching resolve to support the markets and economy, at a time when it’s juxtaposed with twin challenges of growth due to the second Covid wave and rising commodity prices obscuring the inflation outlook. The MPC has extended the financial safety net to assuage the stress in the system, while reassuring the market of maintaining ample liquidity and remaining accommodative to nurture growth as long as necessary. The targeted redressal of concerns around absorption of elevated borrowing programme in FY22 by way of announcing another round of GSAP 2 of 1.2 lakh cr, is indeed another hallmark move by MPC. While the MPC has toned down the GDP forecast to 9.5%, it has resorted to extend measures to support growth. The extension of a separate liquidity window for contact intensive sectors along with additional liquidity to SIDBI and the expansion of the scope of restructuring 2 framework to more borrowers, is indeed a welcome move for the liquidity strapped sectors. Overall,  a Growth supportive policy focused on nurturing the nascent growth in the economy.”

Ms. Aditi Nayar, Chief Economist, ICRA Limited

The MPC is firmly focussed on nurturing a durable revival in growth and we anticipate that it will demonstrate a high tolerance for the average CPI inflation to range between 5-6% during the recovery period. While the MPC's real GDP growth projection of 9.5% is in line with the upper end of our own forecast range of 8-9.5%, we believe that accelerated vaccine availability, resulting in a back-ended surge in domestic demand, is central to this outcome. Such a resurgence in demand may however be inconsistent with an average CPI inflation of 5.1% in FY2022, unless taxes on fuels undergo an appreciable reduction. The inclusion of SDL in the last tranche of GSAP 1.0 is likely to temporarily moderate the 10 year G-sec-SDL spread below the prevailing 80 bps. Nevertheless, a sustenance of lower spreads may require continued purchases of SDL by the Central Bank through GSAP or regular OMO.

Shiv Parekh, Founder - hBits

It is a welcome step by the RBI to keep the repo rate unchanged. The second wave of Covid 19 has affected the Indian economy, the lockdown has resulted in inventory and logistics challenges. The unchanged repo rate will help in the fiscal efforts of the government. It will help in sustaining the economic stability in the country as well as keep the real estate sector stay afloat during these unprecedented times. RBI's decision to extend the benefit of restructuring some commercial real estate loans (CRE) to non-bank lenders will also benefit the overall real estate sector. We expect that real estate, both commercial and housing will contribute a substantial share to the overall economic development, due to these measures. It is expected that repo rates are not hiked for the next two quarters and an accommodation monetary policy is maintained for overall economic momentum.

Related Story

Open Free Demat Account (Rs699)
Open ZERO Brokerage Demat Account

  • 0

    Delivery Brokerage for Lifetime

  • 20

    Per order for Intraday, F&O, Currency & Commodity