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RBI Monetary Policy: Repo rate kept steady at 4%; What do experts say?

01:17 PM Dec 08, 2021 | FPJ Web Desk

The Reserve Bank of India (RBI) on Wednesday kept the benchmark interest rate unchanged at 4 per cent and decided to continue with its accommodative stance in the backdrop of concerns over the emergence of the new coronavirus variant Omicron.

Experts say:

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Dhaval Ajmera, Director of Ajmera Realty & Infra India Ltd

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RBI’s announcement to continue with its accommodative stance is a welcome move to support recovery and safeguard economic fundamentals against the risks rising from any exponential outbreak of omicron variant.

RBI maintaining status quo on rates augurs well for brining equilibrium in the demand-supply economics of the real estate industry. With low loan interest rate regime, the home sales velocity witnessed across key Indian cities will continue on upward trajectory.

The revision of GDP and inflation targets are seen to be milder than expectation. The upcoming discussion paper to make the digital payments more affordable is a positive take-away from Governor’s speech. The announcements related to digital payments can offer disruption and bring dynamism in financial inclusivity expedition in the country.

IMC President, Juzar Khorakiwala

The accommodative policy stance by RBI reflects confidence that inflation projections would be in line with earlier projection. And in the backdrop of the government intervention on supply side of food products, reduction in excise duty and VAT on petroleum products, further supported by benign metal outlook, RBI rightly maintained an accommodative policy stance as continuing support to the economy. GDP is picking up but still not self-sustaining and needs policy support.

We welcome the policy stance as well as forward guidance on policy by the RBI which we believe would further spur economic activities and help bring it back to pre-pandemic level.

Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities

The policy was as expected and cautious on the uncertainty due to the Omicron variant. Also, the RBI continued with the liquidity normalisation on expected lines without any explicit signal of liquidity withdrawal. The inflation estimates are also lower than what the markets are expecting. Broadly, the policy is more dovish-than-expected possibly given the uncertainty from the new Covid variant. If the Omicron variant is benign, we expect reverse repo hike of around 20 bps possible in the February policy and tad more aggressive liquidity withdrawal.

George Alexander Muthoot, Managing Director at Muthoot Finance

We welcome RBI's decision to continue with accommodative stance as long as necessary and maintain status quo on rates, the RBI also remains committed to broaden growth impulses and preserve financial stability. I concur with RBI’s stance that while the recovery impacted by the pandemic is gaining traction, Private consumption is still below pre-COVID-19 levels, private investment is still lagging and hence the nascent growth still needs policy support.

The RBI also continues to rebalance liquidity conditions in a non-disruptive manner. While the challenges interms of managing growth-inflation dynamics, uncertainty with regards to Omicron continue, we are hopeful that the continued policy support will bode well for sectors like MSME, Agriculture and housing. We are also hopeful that pick up in Government spending and pent up demand will ensure that the market sentiment remains positive and demand revival continues to pick up pace thereby supporting demand for gold loans.

Umesh Revankar, Vice Chairman & MD, Shriram Transport Finance

The RBI on expected lines kept the key rates unchanged for the ninth consecutive time and retained accommodative stance as long as necessary. While rebalancing liquidity conditions in a non-disruptive manner, the Governor reiterated commitment to support the nascent economic recovery and preserve financial stability.

The Governor once again retained FY22 GDP growth forecast at 9.5% and stated that while the recovery is gaining traction, it is not strong enough and private investments are still lagging. Amidst the challenges with respect to inflationary pressure, global supply chain bottlenecks, high commodity prices, uncertainty caused due to Omicron, the RBI’s motto is to ensure a soft landing that is well timed. While we need to be cognisant about sticky core inflation, continued benign interest rates will be positive to support broader economy particularly SMEs, small businesses and unorganised sector.

As we look forward to 2022, the business activities have resumed pan-India, Government spending is picking up, we are hopeful that this will give fillip to urban demand conditions thereby supporting vehicle finance industry.

Dr Samantak Das, Chief Economist and Head of Research & REIS (India), JLL

Uncertainty, resilience and growth prompt status quo of policy rate

The unexpected global headwinds propelled by the new COVID-19 variant to the economic recovery prompted Reserve Bank of India to maintain the policy rates. RBI has kept the policy rate unchanged for the ninth time as it has been trying to support growth and rein inflation. Indian economy grew better than expected by posting 8.4% growth during Q2 FY22 indicating the strength of the economy. The accommodative stance and gradual normalisation measures also signal that economy is on the firm path of growth. Indian economy has demonstrated its resilience to uncertainty in the past and it is expected deal with it more prudently in future.

The growth registered by the real estate sector in Q3 2021 is likely to continue and to end this year on a positive note. In Q3 2021, residential sales witnessed an upward trajectory, increasing by 65% on a sequential basis. This sector is expected to benefit from a regime of low mortgage rate, coupled with duty waivers, realistic property pricing and attractive offers leading to affordable synergy.

Naveen Kulkarni, Chief Investment Officer, Axis Securities

RBI remains supportive of getting the economic growth on track, continuing with a soft interest rate regime, and calibrating liquidity conditions in the system. On expected lines, the status quo was maintained on rates with an accommodative stance. Stance on inflation has been mildly tinkered with, even as markets were expecting marginally higher upward revisions.

GDP estimates at 9.5% for FY22 indicate a wait and watch policy by RBI eyeing risks emanating from the new COVID-19 variant and further demand push required to revive growth. Interest-sensitive sectors such as banks, housing will continue to be key beneficiaries. We believe that RBI prioritizing growth with an eye on inflation will keep the hardening of interest rates gradual and the upcoming Budget in February to be a key trigger for the markets.”

Rajiv Sabharwal, MD & CEO, Tata Capital

The economy has gained growth momentum over the last 6 months, however RBI will want to further nurture a broad based recovery and will also aim at sustainability of the same. There is no upward change in the reverse repo rate as contrary to market anticipations. Also, at this juncture, RBI remains guarded against any adverse impact that may arise on account of the new Omicron Covid-19 variant.

Although inflation remains a concern, moderation of crude prices and the recent cut in excise duty will work in favour for the inflation trajectory. Also, Inflation is expected to be within the comfort corridor of the RBI.

Dr M. Govinda Rao Chief Economic Adviser, Brickwork ratings

The decision to hold the policy rates by the MPC is on expected lines. On the GDP guidance, the RBI has retained the growth forecast at 9.5% for FY22, while revising the Q3 estimate lower from 6.8% to 6.2% and Q4 estimate from 6.6% to 6%. Although the RBI has lowered its GDP forecasts for H2FY22, it hopes for a 17.2% growth in Q1FY23 mainly due to the base effect. It has sounded the caution on downside risks to growth emanating from the normalization of liquidity in the advanced economies, global supply-side bottlenecks, elevated commodity prices and resurgence of Covid variants which may dampen the growth recovery.

On inflation, the RBI sees hardening of prices in Q3 FY22 but has retained the inflation forecast at 5.3% for FY22. The expectation of inflation moving within the MPC’s upper range provides scope for the continuation of the accommodative policy stance in the current fiscal. Overall, the MPC has continued with the assurance of continuation of accommodative stance to support and nurture the growth recovery. It has also indicated the continuation of liquidity normalization keeping in view the requirements of the market.

Sandeep Runwal - President, NAREDCO Maharashtra and Managing Director, Runwal Group

The RBI has always taken a proactive stance to ensure liquidity in the past few months, and has continued it's accommodative policy stance amid the renewed Covid threat from the Omicron variant. It is imperative that low mortgage rates would continue, at least till the end of the year. This will provide required fuel for the growth of the economy along with the real estate industry to which several other allied sectors are linked with. We at NAREDCO have already urged the State Government to reconsider their decision and reinstate the stamp duty reduction for another year so as to encourage home buyers and invest in their dream homes.

Churchil Bhatt, EVP Debt Investments, Kotak Mahindra Life Insurance Company

In line with expectations, MPC left Policy Rates unchanged and persisted with accommodative stance citing uncertainty around the new Covid variant. Despite the upside pressures on core inflation, the MPC drew comfort from the excise duty cuts, expecting CPI inflation to peak in Q4FY22. On liquidity management front, RBI increased the quantum of existing VRRR (variable rate reverse repo) operations in a continuing effort to nudge the overnight rates higher towards repo rate. Subsequently, we expect MPC to start hiking reverse repo gradually beginning February 2022 policy.

During this era of high uncertainty, this predictability in the path of monetary policy is of immense support to economic sentiments. Such slower than expected pace of policy normalization coupled with reduced RBI bond buying may signal a pause in recent trend of yield curve flattening. 10 Year Benchmark Gsec is expected to trade in 6.30% - 6.50% range in the near term.

Ram Raheja, Director, S Raheja Realty

The decision to maintain the same repo rate and reverse repo rate by the RBI is in line with expectations which will act as a catalyst for economic growth. The MPC meeting took place at a time when the country is coping with high inflation, despite the fact that the rate has declined from its peak in June 2021, when it was above 6%.

However, the economy grew at a record pace of 20.1 per cent in the April-June quarter compared to the same period last year, when a nationwide lockdown caused by the COVID-19 outbreak had halted almost all economic operations. The pandemic and lockdown was a silver lining for the real estate sector given it is a safe-haven and tangible asset at the time of crisis.

This led to increased investment and home-buying in the last two years. A low home loan interest rate regime has been greatly instrumental in further stimulating India’s real estate sector, especially during the festive season. The sentiment for the real estate sector therefore remains positive and the same is also reflected in the S&P BSE realty index as it continues upward movement.

Pradeep Multani, President, PHD Chamber of Commerce and Industry

RBI’s accommodative policy stance to keep repo rate unchanged will support the anticipated growth trajectory and continue to mitigate the impact of COVID-19 on trade and industry.

The accommodative policy stance at this juncture would not only pave the way for a double digit GDP growth in the current year 2021-22, but will also help in creating a strong, sustainable and vibrant economy going forward.

Abheek Barua, Chief Economist, HDFC Bank

The RBI policy announcement was on expected lines as the central bank continued to support growth and sounded caution on the omicron risk. The central bank kept its stance, policy rate and corridor unchanged and did little to provide any forward guidance on the path of future policy rate increases. The RBI kept its inflation forecast unchanged at 5.3% for FY22, signalling that it believes inflation to be more transient than permanent in nature.

We expect inflation prints to surprise on the upside and average at 5.6% for FY22, driven by elevated input and fuel costs and as the base effect wanes off. On liquidity normalisation, the RBI continued its auction based rate management policy, moving away from the reverse repo – so far the effective overnight rate – towards the repo rate through liquidity rebalancing from the overnight to the VRRR (variable rate reverse repo) window. We expect this to put further upward pressure on the short-end of the curve

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