The equity benchmark BSE Sensex rallied over 500 points in morning trade on Friday, after the Reserve Bank maintained an accommodative stance and kept key interest rates unchanged in its bi-monthly monetary policy review. After reclaiming the 60,200 level, the 30-share Sensex traded 524 points or 0.88% up at 60,201.83. Likewise, the Nifty rose 149.45 points or 0.84% to 17,939.80. The central bank maintained the accommodative stance taking a cue from the easing of inflation in July and August indicating that RBI will continue its policy support to sustain growth momentum.
Industry watchers believe that the RBI has taken an extremely balanced approach, given that the Indian economy continues to be resilient but the aggregate demand has still not reached the pre-pandemic levels. They also feel that the policy announcements may also provide comfort to bond markets. Here’s what they have to say on the RBI MPC outcome.
Mohit Ralhan, managing partner and chief Investment Officer of TIW PE
The easing of food inflation has been a major consideration especially with the record production of Kharif food grains along with decreasing risks of new Covid wave and high rate of vaccinations. While inflation will remain a major area of concern, especially given the increase in energy prices across the globe, the focus is likely to be on sustaining growth till the time inflation remains below RBI’s forecast of 5.3% for FY-22. The Indian markets continue their bull phase and now focus will be on the global cues, especially the change in monetary policies of central banks of other major economies and unwinding the expansion of their balance sheets.
Anand Nevatia, fund manager, TRUST Mutual Fund
The Governor has assured the markets of ample liquidity while announcing higher VRRRs to absorb the excessive systemic liquidity. Absence of GSAP has impacted markets negatively specially at the longer end of the curve. The CPI readings will be low for the next couple of months. Inflationary expectations could lead to underperformance of longer maturity bonds. Easy liquidity will support performance of funds up to maturity of 3 years.
Churchil Bhatt, EVP debt Investments, Kotak Mahindra Life Insurance Company
The MPC acknowledged that crude oil and other commodity prices remain a threat to the inflation trajectory, but weak demand should limit the pass-through to output prices. Importantly, on the action front, the RBI signalled the beginning of gradual “Tapering” of liquidity by extending VRR auction tenor, a measure widely expected by markets. While the RBI has refrained from committing any GSAP amount to support bond yields, their emphasis on an “orderly evolution of yield curve” should provide comfort to Bond Markets. We expect 10Y Gsec to trade in 6.20%-6.40% range in the near term.”
Pradeep Multani, president, PHD Chamber of Commerce and Industry
The status quo for the key policy rates by RBI would strengthen the economic recovery with enhanced consumption and production possibilities. It is inspiring to note that RBI has retained the projection for GDP growth at 9.5% for FY 2021-22. We look forward to a double-digit growth of 10.25% in FY 2021-22 supported by the RBI’s conducive policy environment and various structural reforms undertaken by the Government during the last 18 months. It is highly laudable that RBI has undertaken more than 100 new and conventional measures since the onset of a pandemic to mitigate its impact and enhance liquidity in the economy. Going ahead, we expect a continuation of accommodative policy stance to rejuvenate the aggregate demand in the economy along with balancing the liquidity scenario in the country. We urge the banking sector to transmit all the cuts in the repo rate by RBI during the last financial year to percolate the benefits to trade, industry and consumers for rejuvenating the demand and economic growth trajectory
Nish Bhatt, founder & CEO, Millwood Kane International
The excess liquidity will help address the anaemic growth in credit offtake. RBI retaining its GDP growth forecast for FY22 at 9.5% is a sentimental booster and the CPI forecast for FY22 lowered to 5.3% from 5.7% earlier despite high crude prices will help address any concerns on rising inflation. An accommodative policy by the RBI should be well complemented by strong corporate earnings, a high pace of vaccination, and a steady pace of economic growth.
Ramesh Nair, chief executive officer, India and market development, Asia, Colliers
We predicted that the repo rate will remain constant to boost consumption in the ongoing festive period. It will go a long way in steering housing sales. Several banks have already lowered their home loans rates by a stable repo rate since September 2021. Overall, it is a good time for homebuyers who can avail of low home loan rates, along with steady prices.
