RBI monetary policy: Economists weigh in on 'relatively more bearish' outlook

The MPC voted unanimously to keep policy rates unchanged. The central bank has maintained its policy stance at “accommodative” which could continue for as long as necessary to revive growth.

Aditya Narain of Edelweiss Securities, Taimur Baig of DB Group Research, Upasna Bharadwaj of Kotak Mahindra Bank, Lakshmi Iyer of Kotak Mahindra AMC, Amandeep Chopra of UTI AMC and Rajiv Anand of Axis Bank discussed this further.

“This is not what markets were expecting,” said Upasna Bharadwaj of Kotak Mahindra Bank.

“Markets were expecting a complete status quo across the board. So this is going to be a little bearish if I were to look at it in that perspective. The inflation forecasts were expected to be revised up and that has happened clearly slightly higher than what we were expecting. We were expecting around 5.5 percent,” she continued.

Also read: RBI projects inflation at 5.7% for FY22, 5.1% for Q1FY23

According to Baig, it is very hard to say that normalization has started.

“As the governor said repeatedly that there is still lot of uncertainty around the issue of the pandemic and there is not that much urgency coming from inflation, it has seen as temporary. Certainly to keep the money markets stable, to keep liquidity ample, the central bank needs to pursue the policy – it has been pursuing it for a while. I don’t think there is any question at this moment about second-guessing the need to start scaling back. Nobody is doing it, why would India do it right now, go out and start talking about normalization,” he explained.

UTI AMC’s Chopra said, “The markets have given their verdict in the way the yields have moved up. I would say that the process to some extent has begun. The statement clearly is a bit more hawkish. We need to wait and watch how it pans out in the next few days.”

According to Iyer, the policy is largely on expected lines. “The short-end of the yield curve would be a tad more vulnerable. The curve which is so steep right now could give way to a gradual flattening with the short-end of the yield curve moving a bit faster than the longer end of the yield curve. Markets will still have to wait for the next set of inflation numbers and some more clarity on the pandemic front before we call it a day as far as the rate easing is concerned,” she said.

Also read: RBI keeps GDP growth forecast for FY22 unchanged at 9.5%

When asked if the cheapest of home loan rates is behind now, Axis Bank’s Anand said, “Whether you look at home loan rate or corporate rates, rates have certainly bottomed out. If you look at the swap curve, it is telling you that the process of normalization should start to kick in somewhere in the vicinity about February of next year and is pricing in a 50 basis points (bps) hike in 2022-2023 and another 50 bps in 2023-2024. So I think in that sense, it is fair to say that the rates have bottomed out.”

Aditya Narain believes it is a very supportive policy. “For the simple reason that the markets don’t need any specific support, all they need is no bad news. So to that extent, this has been pretty supportive. Even though they have upped the inflation guidance a little bit, I think the talk on rates remain fairly dovish,” he reasoned.

At the moment, from an equity markets perspective, there is a party that is on and no one wants to bust it, he stated.