RBI Monetary Policy HIGHLIGHTS: Guv Shaktikanta Das-led MPC keeps interest rates unchanged; calls private cryptocurrencies huge threat

That's all from our RBI Monetary Policy coverage today with markets staying positive as benchmark Sensex jumps over 500 points. More from markets here

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Rajiv Sabharwal, MD & CEO, Tata Capital Ltd: Contrary to market expectations RBI continues to maintain its rate status quo and accommodative policy stance as well. This will accelerate the growth momentum in the economy. Further, RBI has taken cognizance of the measures taken by the global central banks with respect to tightening of interest rates but remains committed to support sustained economic activity. RBI continues to offer assurance to the markets that there will be a rebalance in the overall systemic liquidity on a dynamic basis and aims for a smooth evolution of the yield curve. The bonds market should draw comfort from this measure and alleviate any price volatility concerns.  

Indranil Pan - Chief Economist, YES Bank: The RBI has provided the market with a very dovish policy –more so than expected by market. Growth concerns continue to play a bigger role than inflation for RBI. In terms of its forecasts on inflation, RBI indicates a glide path for inflation going down to the 4% handle in Q3 and Q4 FY23. While the RBI contends that the growth momentum remains positive, the stance however indicates that the RBI is willing to wait longer to see the growth becoming durable and sustainable. For now, the RBI has decoupled itself with the monetary policy momentum in the rest of the world, where higher inflation prints are leading to central banks of the developed economies to tighten rates. We believe that RBI may be able to hold back repo rate increases for longer and may not have any compulsion to follow global central banks unless their actions have any severe implication on the USD/INR rates. We foresee 2 repo rate increases in FY23 but predicting a timeline is difficult at this point.

Rajee R, Chief Ratings Officer- Brickwork Ratings: In line with BWR’s expectations, RBI continued its dovish stance and remained accommodative by reiterating that despite the economic recovery and aggregate demand gaining traction and improving inflation outlook, continued policy support is warranted to support domestic growth, which is the highest priority. Continuing with its calibrated liquidity management policy to maintain financial stability, RBI emphasized that VRR and VRRR would be the main tools for liquidity adjustment indicating gradual policy normalization on the liquidity front. While stating that headline inflation will peak in Q4 of the current fiscal, RBI maintained its inflation projections at 5.30% for FY22 and a dovish forecast at around 4.50% thereafter. Enhancement of cap and multiple-use under e-RUPI prepaid digital voucher, new credit default swap (CDS) guidelines (to be announced today)  and extension of on tap liquidity for emergency health services and contact intensive sectors till June 30, 2022, are welcome steps. Hiking of limit under Voluntary  Retention Route (VRR)  scheme from Rs. 1.5 Lakh Crs. to Rs. 2.5 Lakh Crs. will provide additional sources of capital for domestic debt markets and government securities. Increase in NACH mandate from Rs. 1 Cr. to Rs. 3 Crs. for TReDS related settlements are expected to improve the receivables financing and overall liquidity position of the MSMEs."

Niraj Kumar, Chief Investment Officer, Future Generali India Life Insurance on the MPC announcement held today

“Overall an Ultra Dovish Policy with an overarching focus on ‘’Durability of Growth”. The dovish verdict comes at a time when the MPC is juxtaposed with a higher than expected government borrowing in FY23 and has chosen to stay put and not react to the incumbent global and domestic pressures warranting for maneuvering of the monetary policy. Belying the market expectations of a reverse repo rate hike, MPC has continued with its effective stealth tightening by way of Variable Rate Reverse Repo (VRRR’s) and has chosen to preserve its ammunition for later, and play the waiting game for now. While the lower Inflation forecasts coupled with the accommodative status quo have imparted short-term respite to the reeling bond markets post the Union Budget, we reckon the upside risks to Inflation may have been downplayed by MPC. “ 

Expert reaction | Sandeep Bagla, CEO TRUST Mutual Fund: “Economics is all about making choices. RBI has chosen to prioritise growth over inflation. Given the expansionary budget, high oil prices, and elevated inflationary expectations, market players were expecting the beginning of the rate hike cycle in India. In the US, economists are expecting the US Fed to raise rates between 5 to 7 times this calendar year. By keeping all key rates unchanged, RBI has displayed confidence that India can remain isolated from global monetary trends. RBI's average expectation of inflation at 4.5% in the FY22-23 is interesting. Bond yields should remain low given that they had risen in expectations of rate cycle reversal. RBI's status quo is a brave step, which could lead to an unpredictable reaction from the investor community in the longer run.”

Expert reaction | Prasenjit K. Basu – Chief Economist, ICICI Securities: "Given global headwinds and the prospect of a gradual moderation of India’s CPI inflation, it is eminently sensible to persist with the accommodative stance. A key reason to keep the policy interest rate at historic lows longer is to spur a more durable rebound in private consumption. India did not massively boost monetary growth during the worst phase of the pandemic (as the US Fed, ECB and BoE did), so there is less need for the RBI to roll back monetary accommodation this year. As the strong rabi crop boosts food supply in April-June, and other supply disruptions from the Third Wave of the pandemic recede, India’s CPI inflation will moderate, allowing policy rates to remain low for longer than in the developed world. That will provide a boost to equity valuations, and help spur a broad-based recovery in consumption and investment."

Expert reaction | Mohit Ralhan, Managing Partner of TIW Capital group: “RBI has maintained the accommodative stance prioritising economic growth and recovery amidst the global concerns on rising inflation. The good news is that inflation in India looks relatively under control with unchanged CPI inflation forecast of 5.3% for FY-22 and projection of 4.5% for FY-23. Inflation is expected to peak in the current quarter and ease in the second half of FY-23. Till the time inflation remains below RBI’s forecast, the focus will remain on supporting growth. Further, RBI has been proactively managing liquidity through VRRRs and there are no concerns on the liquidity side. Overall, the commentary on economic growth, increasing strength of PSU banks’ balance sheet, financial stability and liquidity is quite positive and RBI has reconfirmed its commitment to protect domestic markets from the impact of global macroeconomic events. The Indian market is expected to respond positively to RBI’s announcements.”

Shrey Aeren, Managing Director & Country Head of Berkshire Hathaway Home Services Orenda, India on RBI Policy

“The decision to maintain the repo rate and reverse repo rate by the RBI; is a welcome step. There were lots of speculations that the rates might change during the policy meeting to reduce the impact of inflation. This status quo will create demand for high-involvement products like real estate. Liquidity along with low interest is the key to the recovery of the real estate industry and the overall economy. The real estate sector is showing signs of recovery and needs government hand-holding for a few more quarters.”

Shanti Lal Jain, MD & CEO of Indian Bank reacts on today’s RBI MPC announcement

“By conducting VRRR and other measures RBI will look to control liquidity in the system. Increasing the cap for FPIs to invest in the domestic bond market will help the Government borrowing plan. Further, allowing banks to participate in off-shore swaps, increasing mandate limit for trade credit to MSMEs and extension of On-tap credit for health & contact intensive sectors till Jun’22 are welcome moves for the Banking sector.”

Expert reaction | M Govinda Rao, Chief Economic Advisor, Brickwork Ratings: "The RBI’s continued focus is on reviving growth reinforced by potential downside risks to economic activity from the highly contagious omicron variant. Improving inflation outlook provides comfort for the RBI to continue with the current policy stance. However, he said, the forecast on inflation is highly dependent on normal monsoon and stability in international commodity prices including other domestic factors like demand and supply situation."

Expert reaction | Raghvendra Nath, Managing Director – Ladderup Wealth Management Pvt Ltd: “The announcements were in line with our expectations. Post-growth-oriented budget announcement it was necessary to maintain a conducive environment that would support the growth. Our economy is still at a stage where a lot of our industries are inching back to normalcy from the pandemic and any rate hikes at this stage could have hindered with their recovery especially for the small and medium enterprises where they need access to cheap capital to be back on track. The GDP growth forecast for FY23 of 7.8% along with the inflation forecast of 4.5%, would result in Nominal GDP growth of 12.5% for FY23 indicating strong economic recovery. Though with oil trading around $90 and projections of further price increases, it would be interesting to see the impact of oil on inflation, especially as the inflation is not only being affected by supply-side challenges but also from the demand side. We believe that in the near term, businesses will continue to benefit from lower interest rates and high liquidity in the system, especially those businesses with capex in the pipeline."

Expert reaction | Y. Viswanatha Gowd, MD & CEO of LIC Housing Finance: “As the housing sales across major cities are at an all-time high, the unchanged policy rates will continue to invoke a sense of optimism for home and property buyers. The policy rates have remained unchanged for the 10th time in a row, and we expect the low home loan interest rate regime to continue for some more time. All this augurs well for the sector and will boost sentiments further. ”

T Rabi Sankar, RBI DG (on CBDC):

Work is on both wholesale and retail models of CBDC

We will decide which model we will test first going ahead

Expert reaction: RBI is quite committed to orderly evolution of yields

Amar Ambani, Senior President and Head – Institutional Equities, YES SECURITIES: “RBI delivered an ultra-dovish policy by maintaining a status quo on the policy rates and the stance. The status quo has triggered strong rally in sovereign bonds, with benchmarks yields retreating from the recent highs. It clearly conveys that RBI is quite committed to orderly evolution of yields, notwithstanding the headwinds in the form of inflationary pressure, hawkish Fed and a large Indian government borrowing plan for FY23. Its stance is backed by its expectation of easing of price pressures by end of the fourth quarter of FY22. This dovish policy is in line with our view that RBI will support growth and not turn hawkish for as long as it can, considering that the US Fed is looking to taper and raise its rates.”