{"id":119439,"date":"2021-08-06T07:21:11","date_gmt":"2021-08-06T07:21:11","guid":{"rendered":"https:\/\/fin2me.com\/?p=119439"},"modified":"2021-08-06T07:21:11","modified_gmt":"2021-08-06T07:21:11","slug":"india-cenbank-keeps-rates-on-hold-as-expected","status":"publish","type":"post","link":"https:\/\/fin2me.com\/markets\/india-cenbank-keeps-rates-on-hold-as-expected\/","title":{"rendered":"India cenbank keeps rates on hold as expected"},"content":{"rendered":"

(Reuters) – The Reserve Bank of India\u2019s monetary policy committee (MPC) kept interest rates steady at record lows on Friday, as widely predicted, but traders were awaiting its commentary about liquidity normalisation for clues on its next policy move.<\/p>

A policeman stands guard at the entrance of the Reserve Bank of India (RBI) headquarters in Mumbai, India, April 4, 2019. REUTERS\/Francis Mascarenhas\/File Photo<\/figcaption>

The RBI held the repo rate, its key lending rate, at 4% and kept the reverse repo rate, the borrowing rate, unchanged at 3.35%.<\/p>\n

All 61 economists polled by Reuters late last month had said they see no change in the repo rate which has been steady at 4% since May last year.<\/p>\n

COMMENTARY<\/h2>\n

RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCIAL HOLDINGS, MUMBAI<\/p>\n

\u201cWhile the policy is in line with the street expectations, it\u2019s difficult to understand the MPC\u2019s growth optimism. It has not revised the projection for Economic growth in FY22 but increased the inflation projection from 5.1% to 5.7% for FY22. Yet, it feels that the inflationary pressures are transitory. This is a bit confusing. However, the RBI\u2019s focus on growth is in the right direction. Markets will demand more clear communication.\u201d<\/p>\n

SHASHANK MENDIRATTA, ECONOMIST, IBM, NEW DELHI<\/h2>\n

\u201cThe central bank continues to prioritise growth over inflation with the stance remaining accommodative. This is positive as a premature departure of the accommodative policy can complicate growth challenges, as outlook is still overcast by the pandemic.\u201d<\/p>\n

\u201cWhile the RBI retained GDP growth projections at 9.5% in FY22, the inflation projections were revised up by 60 bps to 5.7%. Higher projection on inflation is largely on account of adverse supply shocks including higher global surge in commodity prices.\u201d<\/p>\n

\u201cAs such, output gap is expected to remain negative through FY22 suggesting that balance of risk continues to favour monetary accommodation this year.\u201d<\/p>\n

SAKSHI GUPTA, SENIOR ECONOMIST, HDFC BANK, GURUGRAM<\/h2>\n

\u201cThe RBI revised its inflation forecasts upward to 5.7% recognising the recent inflation spikes. That said, the central bank continued to state that it views inflation as transitory and will look through it while prioritising growth.\u201d<\/p>\n

\u201cThe increase in quantum of VRRR (variable reverse repo rate) absorption from the market over the next two months is likely to prevent distortions due to excess liquidity for short term rates. We could see some upward pressure on short term rates and the bottom for rates is likely over. The yield curve could see some flattening over the coming weeks.\u201d<\/p>\n

\u201cThe broad-based increase in inflation over the last few months raises uncertainty around the transitory nature of the inflation trajectory and we expect prints to cross 6% once the base effect falls out in Q4 FY22.\u201d<\/p>\n

RADHIKA RAO, ECONOMIST, DBS BANK, SINGAPORE<\/h2>\n

\u201cThe MPC retained its state-based guidance i.e. implicitly committing to support growth and retain policy flexibility, as optimism on stronger incoming data was tempered by risks of a third coronavirus wave. The upward revision in inflation forecast was along expected lines, with the calibrated increase in the VRRR auction size, underscoring the central bank\u2019s intent to lay the ground for eventual policy normalisation down the line.\u201d<\/p>\n

KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU<\/h2>\n

\u201cAnnouncement of an unchanged policy rate, on expected lines, is not what the market participants were keeping an eye on. Who eventually gets the precedence in growth versus inflation trade-off is where the interest veered on.\u201d<\/p>\n

\u201cAs of now, it seems growth has won the day with assertion of continuation of accommodative stance as long as necessary to support growth (with continued belief in transitoriness of inflation) with the central bank convinced that monetary policy can do all the heavy lifting to support growth without relevant fiscal intervention or even the lack of intention to cut taxes on petrol and diesel to keep a leash on inflation.\u201d<\/p>\n

\u201cFor the time being, it seems the RBI is using the entire band of 2%-6% as target range (rather than the median of 4%) to continue to remain accommodative. Inflation may have peaked but with the RBI raising FY22 inflation forecast to 5.7% (quite in line with our expectation of 5.6%) from 5.1% earlier is clear indication of underlying price pressure that too needs to be addressed in order to prevent a potential stagflation situation going forward.\u201d<\/p>\n

VIVEK KUMAR, ECONOMIST, QUANTECO RESEARCH, MUMBAI<\/h2>\n

\u201cThe overall stance continues to remain accommodative, with continued emphasis on nurturing growth impulses while also mitigating downside economic risks from the spread of COVID-19.\u201d<\/p>\n

\u201cHowever, basis the upward revision in average FY22 CPI inflation forecast to 5.7% from 5.1% and expecting GDP growth recovery to remain intact (with unchanged FY22 forecast of 9.5%), the RBI took calibrated action to modulate liquidity conditions by increasing the size of the current VRRR auctions… This should nudge short-term money market rates to firmly above the Reverse Repo Rate.\u201d<\/p>\n

\u201cWhile this would be neutral for core liquidity in the system, it nevertheless portends the intention to gradually move towards monetary policy normalisation. We continue to expect the RBI to take rate action by restoring the width of the LAF corridor to 25 bps from 65 bps currently between December, 2021 and February 2022 by upward adjustment in RRR from 3.35% currently to 3.75%… followed by a 25 bps hike in the repo rate in April 2022.\u201d<\/p>\n

PRITHVIRAJ SRINIVAS, CHIEF ECONOMIST, AXIS CAPITAL, MUMBAI<\/h2>\n

\u201cThe MPC has kept policy rates on hold as expected. The only major move was an increase in VRRR limits, which was widely expected. However, the governor was quick to point out that VRRR increase does not indicate a change in monetary policy stance.\u201d<\/p>\n

\u201cWe expect the timing of first policy rate increase in the future to coincide with confidence that vaccinations provide adequate protection against a relapse.\u201d<\/p>\n

GARIMA KAPOOR, ECONOMIST – INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI<\/p>\n

\u201cAmid fears regarding another wave of coronavirus and to sustain the incipient economic recovery, the RBI continued to prioritise growth despite inflation remaining sticky and closer to upper band of the target.\u201d<\/p>\n

\u201cWhile the RBI enhanced the quantum of VRRR rate auctions to suck out a part of ballooning systemic surplus liquidity, policy rate normalisation is still sometime away. We expect that the RBI will continue to maintain accommodative stance through this calendar year and embark a reverse repo rate hike in Q4FY22.\u201d<\/p>\n

UPASNA BHARDWAJ, SENIOR ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI<\/p>\n

\u201cExpectedly, the RBI maintained status quo, maintaining a fine balance between the risks to GDP and inflation. However, we believe that increasing risks to inflation and economic activity picking up pace has prompted the MPC into taking liquidity normalisation measures through additional VRRR. This would clearly help in anchoring inflation expectations.\u201d<\/p>\n

Source: Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

(Reuters) – The Reserve Bank of India\u2019s monetary policy committee (MPC) kept interest rates steady at record lows on Friday, as widely predicted, but traders […]<\/p>\n","protected":false},"author":3,"featured_media":119438,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"yoast_head":"\nIndia cenbank keeps rates on hold as expected - Fin2me<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/fin2me.com\/markets\/india-cenbank-keeps-rates-on-hold-as-expected\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"India cenbank keeps rates on hold as expected - Fin2me\" \/>\n<meta property=\"og:description\" content=\"(Reuters) – The Reserve Bank of India\u2019s monetary policy committee (MPC) kept interest rates steady at record lows on Friday, as widely predicted, but traders [...]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/fin2me.com\/markets\/india-cenbank-keeps-rates-on-hold-as-expected\/\" \/>\n<meta property=\"og:site_name\" content=\"Fin2me\" \/>\n<meta property=\"article:published_time\" content=\"2021-08-06T07:21:11+00:00\" \/>\n<meta name=\"author\" content=\"Mark\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:image\" content=\"https:\/\/fin2me.com\/wp-content\/uploads\/2021\/08\/India-cenbank-keeps-rates-on-hold-as-expected.jpg\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Mark\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"5 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/fin2me.com\/markets\/india-cenbank-keeps-rates-on-hold-as-expected\/\",\"url\":\"https:\/\/fin2me.com\/markets\/india-cenbank-keeps-rates-on-hold-as-expected\/\",\"name\":\"India cenbank keeps rates on hold as expected - 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