RBI Monetary Policy Live Updates: The Reserve Bank of India (RBI) Monetary Policy Committee has kept the interest rates unchanged. The repo rate has been kept at 4 per cent. The reverse repo rate or the central bank’s borrowing has been unchanged at 3.35 per cent. The central bank of India is also kept the policy stance unchanged at “accomodative”. Considering the hardening inflation and looming Covid-19 third wave, experts believed that the rate setting committee will keep the interest rates and policy stance unchanged. The RBI Monetary Policy Committee kept the lending rates unchanged for the last six times. “In a much better position as compared to June 2021. Need to remain vigilant on possibility of a third wave,” said RBI governor Shaktikanta Das.
High inflation and uncertain growth scenario will likely force the policymakers to continue on a wait-and-watch mode for more cues. To tide over the crisis due to Covid-19 second wave, the central bankn on Friday extended the on-tap TLTRO (targeted long-term repo operations) scheme. The aim is to make sure that there is enough liquidity in the markets. “Given the nascent and fragile economic recovery, it has now been decided to extend the on-tap TLTRO scheme further by a period of three months, i.e. till December 31, 2021,” Das said. The RBI also extended the relaxation given to banks on marginal standing facility (MSF) till December, 2021.
“We welcome the RBI’s unchanged view on the ‘accommodative’ stance and commitment to maintaining the liquidity in the economy. Despite the inflationary pressures, RBI maintaining status quo on key policy interest rates and continuing with growth supportive policy stance was need of the hour,” said Shishir Baijal, chairman & managing director, Knight Frank India.
Rajiv Sabharwal, MD & CEO, Tata Capital Ltd.
The decision of maintaining rate status quo and continuing with the accommodative policy stance once again demonstrates RBI’s unwavering resolve to support growth in the economy. The rebound in the economic activity post the second wave has been faster and it is imperative to build on this momentum. The RBI has taken note of the broad based pattern of rising inflation due to adverse supply shocks and global increase in commodity prices. However, at this juncture, growth concerns outstrips the evolving inflation dynamics. The systemic liquidity continues to remain surplus supporting rate transmission and maintaining the southward bias of the rate curve. The bond market anticipates normalisation of liquidity in the near future. It is important that the impact of the same will be absorbed without bringing volatility to the rate curve.
Vikash Khandelwal, CEO, Eqaro Guarantees on RBI Policy
“The RBI has been doing the heavy lifting to bring back the economy on track since the pandemic struck last year. It has announced more than 100 measures to support growth. The move to extend TLTRO till December will further aid growth. Over the high-frequency indicators, normal monsoon, and steady pace of vaccination indicates the RBI estimate of 9.5% growth for FY22 is achievable. The decision by the RBI to keep key rates and the unchanged 'Accomodative' policy stance was on expected lines. Easy liquidity will help businesses, especially the MSMEs at a time when demand is recovering. The governor has allayed concerns on inflation as well.’’
Honeyy Katiyal, Founder of Investors Clinic
The recovery in real-estate has been on growth trajectory and with RBI keeping its stance same and with no rate hike, it will improve the sentiment further. The festival season is the make and break for the residential real-estate and some rate cut no doubt would have sent a strong signal to the investors and buyers, but unchanged rates is also a welcome step for the developers. With the overall growth being lower across sector and inflation at a higher end, lower rates will go a long way to help a sector which is the powerhouse for employment generation..
Nirav Karkera, Head of research, Fisdom
“The corporate earnings season has kicked off on a relatively healthy note. This, coupled with healthy foreign inflows, improving public health situation and gradual uptick in trade is reflected comprehensively in broader indices. However, one must remain wary of looming risks in the form of lingering threat to public health, relatively fragile state of the capex cycle and risks associated with supply-induced inflation. The central bank maintains status quo in good acknowledgement of the problems associated with a pre-emptive reaction to reflationary trends, especially when the broader economics is struggling to get a stronger grip of expected revival.”
Rajee R, Chief Ratings Officer, Brickwork Ratings
RBI’s announcements, while largely on expected lines, also pointed to a slightly less dovish tone. The growth supportive policy reiterated RBI’s “whatever it takes” mode to ensure preservation of financial stability and sustainable growth to mitigate the impact of COVID on the economy, especially since the underlying conditions around aggregate demand are still weak. The increase in quantum of VRRR indicates the start of policy normalization on the liquidity front. However, while noting that pre-emptive monetary policy response at this stage will kill the nascent recovery, RBI has extended the On-tap TLTRO and MSF relaxation by another three months. Announcement of conducting two more GSAP auctions in August help in anchoring yield expectations and easing the government borrowing programme. Extension of the timeline by six months to achieve the threshold for certain operational parameters under the RBI Resolution Framework for COVID related stress is a relief. Revision of the inflation forecast to 5.70% reflects the higher inflation scenario.
Mohit Ralhan, Managing Partner & Chief Investment Officer, TIW Private Equity
RBI has maintained the accommodative stance indicating that the primary focus area remains growth and economic recovery is more critical than inflation. This was on expected lines as RBI has been demonstrating sustained commitment to growth. The September and December quarters are critical given the risk of third wave of COVID-19 and RBI has implemented proactive measures to maintain adequate liquidity in the system. The markets are in strong bull phase indicating significant confidence on India’s growth prospects and RBI’s policy stance extends a strong support to it.
Niraj Kumar, CIO, Future Generali India Life Insurance
MPC has shifted its policy tone, reflecting the ever evolving dynamics of Inflation and growth, wherein the spectre of rising inflation and growth recovery is getting more pronounced. Today’s policy verdict can be perceived as a slight deviation from the hitherto ‘Dovish stance‘, as exemplified by MPC’s inflation forecasts being nudged higher. While the absorption of liquidity under VRRR window is set to increase in a calibrated manner pointing to unleashing of the gradual liquidity normalization process, however the reassurance to continue with its liquidity measures such as GSAP’s OMO’s OT’s etc would keep the bond market apprehensions at bay. Liquidity and credit push measures in terms of extension of MSF relaxation and extension of On Tap TLTRO will aid the credit growth in the system
Rohit Poddar, Managing Director, Poddar Housing and Development Ltd
“RBI’s decision to maintain the status quo keeping the repo rates unchanged at 4 per cent indicates a continuation of its accommodative stance. Although, more efforts are needed to restore the supply-demand balance in the Real estate and infra sectors but continuation of lowest lending rates will ensure that businesses get more window to cope up with the pandemic related challenges. The decision comes at the peak of high inflation and slow growth with a concerning pandemic sitch around the globe. The yield curve and liquidity management were the central focus of the committee. However, we are evidently in a much better place compared to the past quarters. Nevertheless, we still need to be more cautious on the possibility of the third covid wave and its overall impact on the consumption,” said Rohit Poddar, Managing Director, Poddar Housing and Development Ltd
Nitin Shanbagh, Head – Investment Products, Motilal Oswal Private Wealth
"RBI continues to prioritize growth and maintain financial stability as far as necessary. Having said, it remains mindful of anchoring inflation expectations. While maintaining a balance between growth/inflation dynamics, RBI is likely to continue with orderly evolution of the yield curve through OMOs & GSAPs. Till durable growth recovery is seen, RBI may not resort to reversal of policy rates and would maintain sufficient liquidity in the system. However, RBI may gradually signal towards normalisation of rates," said Nitin Shanbagh, head – investment products, Motilal Oswal Private Wealth.
Ravindra Sudhalkar, CEO at Reliance Home Finance
"The move by the Reserve Bank of India's Monetary Policy Committee to keep the repo rate unchanged at 4% was an expected move given the growth concerns hanging over the economy, especially from the impending third wave of the COVID19 pandemic. Even though inflation is high and a concern, any rate hike at this juncture would've been a deterrent to growth. Also, although the RBI maintained GDP growth forecast at 9.5% for FY22, Governor Shaktikanta Das has pointed out that the underlying conditions around aggregate demand are still weak," said Ravindra Sudhalkar, CEO at Reliance Home Finance.
RBI policy is Hawkish at the Margin: TRUST Mutual Fund CEO
“RBI policy is hawkish at the margin. RBI has acknowledged the strong growth and negative surprise on inflation front. One of the MPC members has voted for change in accommodative stance. While there is no real change in the policy, bond market participants will take the nuanced change in language seriously. There is a distinct possibility that yields at the longer end, 10 years, will inch up towards 6.50% gradually. Investors should invest in bond funds with lesser than 3 years maturity to minimise interest rate risk,” said Sandeep Bagla, CE0, TRUST Mutual Fund.
We are in a Much Better Position: Shaktikanta Das
MPC voted with 5:1 majority to continue with ‘Accommodative’ stance as long as necessary to support growth. "In a much better position as compared to June 2021. Need to remain vigilant on possibility of a third wave," said RBI governor Shaktikanta Das
CPI inflation surprised on the upside in May: Shaktikanta Das
CPI inflation surprised on the upside in May; price momentum however moderated. Outlook for aggregate demand is improving but underlying conditions are still weak. More needs to be done to restore supply-demand balance in no. of sectors: RBI governor Shaktikanta Das
Expect the MPC to Dial up its FY22 Inflation Forecast from the Present 5.1% y/y: Radhika Rao, senior economist at DBS Bank
“Expect the MPC to dial up its FY22 inflation forecast from the present 5.1% y/y. Headline CPI inflation has stayed above the 4% target midpoint for 21 consecutive months and above the 6% tolerance band for more than half of that period. We expect price pressures to moderate for the rest of 2021 and bounce in the March 2022 quarter. Our CPI inflation forecast for FY22 is 5.5%," opined Radhika Rao, senior economist at DBS Bank.
'RBI is likely to maintain an accommodative stance until normalcy returns'
RBI is likely to maintain an accommodative stance until normalcy returns, a lot of which depends on vaccination rates where India is far behind advances economies. There is a re-opening-led demand revival and that is probably exerting upward pressure on inflation, and pushing prices above RBI’s tolerance band. The monetary reaction function however is expected to hinge more on growth revival and growth remaining sustainable, which is likely to take another 6-8 months at least. An accommodative stance will benefit the home loan market and demand for home loans which has been growing by close to double digits is likely to get stronger," said Ravi Subramanian, MD & CEO, Shriram Housing Finance.
Will RBI signal liquidity withdrawal?
Liquidity has moved into a significant positive zone. The net liquidity absorbed by the RBI amounts to INR7.5trn as on 03rd August while the durable liquidity surplus in the system is close to INR10trn. Despite this, bond yields have tended to inch up recently – both for the 10-year and the 5-year G-sec. We think that the liquidity comfort will be essential for the markets for now and an attempt towards fine tuning will have to be carefully communicated to prevent any adverse impact on yields, said Yes Bank economists.
Inflation Target Will Be Revised?
Our model indicates a climb down of Headline CPI inflation to within the target band of 4+/-2% from the next reading and is likely to soften with a high base from last year. Moreover, global commodity prices are stabilizing now, implying that imported inflation fears could recede, said said Yes Bank Economists
RBI to Keep Repo Rate, Reverse Repo Rate Unchanged Today
All 61 economists polled by Reuters expected the MPC to hold rates as Asia’s third largest economy grapples with various local lockdowns to control Covid-19 pandemic. However, the consensus expected the central bank to make two 25 basis point increases next fiscal year, taking the repo rate to 4.50 per cent by end-March 2023.
RBI MPC on August 6: When and Where to Watch
Reserve Bank of India tweeted: Watch out for the Monetary Policy statement of the RBI Governor @DasShaktikanta at 10:00 am on August 6, 2021 YouTube: https://youtu.be/adn3YQ2iqIA. Post policy press conference telecast at 12:00 noon on the same day. YouTube: https://youtu.be/kbY0_YqILoo