(Reuters) – The Reserve Bank of India maintained stable levels at record lows on Friday and reiterated its continued support for the recovering economy by ensuring that there is plenty of liquid rupee in the banking system.
The RBI repo or prime loan rate was maintained at 4% while the reverse repo rate or its lending rate remained unchanged at 3.35%.
The repo rate was cut by 115 total base points from March 2020 to reduce the panic outbreak, following a 135 bps reduction from the beginning of 2019.
RBI Governor Shaktikanta Das said the MPC unanimously decided to hold back rates. He said the growth outlook for the economy had improved and inflation was expected to remain within the target range of the RBI over the next few quarters.
COMMON
SAKSHI GUPTA, SENIOR ECONOMIST, HDFC BANK, GURUGRAM
“With large government loans in the first half, rising inflationary risks, and a lower liquidity surplus, bond yields are likely to remain under pressure, going forward. We expect bond yields to trade between 5.95% and 6.10% in the second half of fiscal 2022. ”
“According to inflation estimates, the RBI issued some caution against the risks of inflation in the coming year and revised the H1 inflation estimate to 5% -5.2%. We expect average inflation at 5.3% in H1. In the medium term, it must be borne in mind that the structure of inflation has an expansive fiscal policy and should be monitored. ”
RADHIKA RAO, ECONOMIST, DBS BANK, SINGAPORE:
“The RBI assessment was advanced, with the FY22 growth estimate set at 10.5% y / y while looking beyond the near term of inflation and highlighting risks to both. ‘Sticky core inflation may be the result of a push in demand from a recovery in economic activity. and higher commodity prices. The social sector’s investment and leadership in the budget was seen as improving the quality of the crown’s mathematics and as a positive for potential growth. ”
“There was some support for bond markets, initially expanding the HTM development to March 2023 and expanding the investor pool by allowing retail investors to access gilts through the RBI, but OMO / OT publication is clearly present, leading to a bearish response in bond prices. But the cost of funding (risk-free levels) is likely to settle at a slightly higher level as activity normalizes. ”
“In terms of liquidity, the RBI clarified that the overall position was still appropriate as long as liquidity was likely to be withdrawn at a calibrated pace to prevent the spread of the policy. CRR customization is still on the way, with non-stop updates. “
ANAGHA DEODHAR, CHIEF ECONOMIST, ICICI COUNTRY, MUMBAI
“We expect inflation to fall in the coming months. The MPC expects real GDP growth of 10.5% in FY22 and print inflation of 5% -5.2% in the second half of fiscal 2022. ”
“In terms of regulation, the most important announcements are the two-tier normalization of CRR, extending the HTM limit for SLR tenancies, delaying capital conservation buffers and allowing retail investment in gilts. Overall, the MPC’s decision is good for growth and financial sustainability. ”
GARIMA KAPOOR, ECONOMIST – INSTITUTIONAL QUESTIONS, CAPALAL ELARA, MUMBAI
“By allaying concerns about hardening market rates due to the high supply of government bonds expected in FY22, the RBI today extended its appropriate position to liquidity and blocked to support the government’s lending program. ”
“While there was no surprise in the rate decision, we believe the decision to allow a retail investor to directly participate in the G-sec market is revolutionary and path breaking. ”
“The RBI needs to walk a tightrope rope in FY22 in balancing the dynamics of growth inflation amid a large supply of government bonds. ”
KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU
“As the monetary policy framework is due for review in March, it has not been sensible to cut the level of policy at this meeting. For January, we expect inflation to fall slightly to 4.4% yoy from 4.6%. More importantly, with inflation firmly moving towards the RBI median target of 4%, we are very comfortable with our call of the next rate cut during Q2 of 2020. ”
“Importantly, the RBI talked about supporting growth. It is likely that we would see the RBI come to government support, even in the fiscal space either by opting for debt money or dividing a portion of their reserve so that the funds can be secured. used specifically for infrastructure development. ”
“This is all the more important, as we see a good chance that the budgeted public capex for FY22 will not meet the target unless the RBI enters into law.”
PRITHVIRAJ SRINIVAS, CHIEF ECONOMIST, AXIS CAPITAL, MUMBAI
“The RBI maintained the level of policy as anticipated and consolidated its position. The working word in today’s (Friday) policy was the governor’s reiteration of a previous statement that orderly evolution of bond markets was in the public interest. The bank’s inflation forecast of 5% in the coming quarters reflects current non-food price pressures seen in the economy that the central bank should be monitoring, even as its accelerating economic recovery and liquidity will still be bountiful on capital inflows as well as large public borrowing. program. ”
Reporting by Chris Thomas, Nallur Sethuraman and Anuron Kumar Mitra and Swati Bhat in Bengaluru and Mumbai; edited by Uttaresh.V