RBI MPC Keeps Rates Unchanged
RBI MPC keeps repo rate unchanged at 4%, reverse repo rate at 3.35%, announces RBI Governor SRBI haktikanta Das.
RBI Governor Shaktikanta Das starts MPC announcement
RBI Governor Shaktikanta Das starts MPC announcement. This will be the second monetary policy of this fiscal.
What Real Estate Sector Wants
Amid concerns over inflation and continued uncertainty in the backdrop of the second covid wave, the RBI is likely to keep the benchmark interest rates unchanged in its upcoming monetary policy review. Rightly so, there is heightened risk of inflation due to higher input costs and also increased petroleum prices. This inevitably will constrain the MPC in taking any rate-related action.That said, since the second wave has once again impacted several sectors including real estate, it is therefore imperative that the RBI enhances liquidity into the system. It will help the real estate sector sail through the current crisis and thereby help towards the growth of the economy at large, said Anuj Puri, chairman – ANAROCK Property Consultants.
Niranjan Hiranandani, National President of NAREDCO
“The central bank is likely to maintain an accommodative stance. The second wave of the COVID-19 pandemic has impacted the economy; there is a need to enhance liquidity in the system, especially for stressed industries. Due measures to ensure banks do not get any more non-performing assets (NPAs) need to be taken up, including moves related to the Insolvency and Bankruptcy Code (IBC),” said Niranjan Hiranandani, National President of NAREDCO.
RBI mainly factors in the CPI while arriving at its monetary policy
The government has retained the inflation target at 4 per cent with the lower and the upper tolerance band of 2 per cent and 6 per cent, respectively, for the next five years (April 2021 – March 2026). Retail inflation, based on Consumer Price Index (CPI), slipped to a three-month low of 4.29 per cent in April mainly on account of easing of prices of kitchen items like vegetables and cereals. The RBI mainly factors in the CPI while arriving at its monetary policy.
Mridul K Saggar, one of the MPC members, said the economic recovery can come under risk if the new wave of infections is not flattened soon. “This is especially so as monetary and fiscal policies have already used most of their space to considerably limit loss of economic capital, though expansion of policy toolkits can still afford additional comfort,” Saggar said. Further, learning effects on calibrating stringency of restrictions may keep economic costs of the second wave much lower than the first but still retard full normalisation by a quarter or two, Saggar pointed out. “Ramping up vaccination, testing and treatment holds the key to protecting economic recovery and health policies have become the first line of defence. Monetary and fiscal policies can only play a second fiddle,” Saggar noted.
RBI Likely to Keep Interest Rates Unchanged
The key lending rate — the repo rate are likely to continue at 4 per cent and the reverse repo rate or the central bank’s borrowing rate will be at 3.35 per cent.
Rumki Majumdar, economist, Deloitte India
“RBI may decide to go with the status quo and maintain an accommodative monetary policy, instead of any further rate cuts. One, intermittent lockdowns are resulting in logistics and inventory challenges. At the same time, commodity prices such as iron and steel are at an all-time high and crude oil prices are likely to increase further as global demand recovers and OPEC decides to cut production. All these will increase production costs. Post economic revival, pent-up demand will further result in demand-push inflation. In other words, there are significant upward pressures on prices in the near term,” said Rumki Majumdar, economist, Deloitte India
India’s Growth forecasts
Most growth forecasts for the Indian economy are now in single digits. Most recently, rating agency Moody’s pegged India’s GDP growth in FY22 at 9.3%.
Ranen Banerjee, PwC India
Ranen Banerjee, PwC India Leader (Economic Advisory Services): The heightened risk of inflation, owing to the higher input costs and petroleum prices, will constrain the MPC in taking any rate-related action. We are in for a long pause with open market operations as a tool that will be employed more frequently towards keeping the 10-year yields close to six percent.
RBI MPC on June 4: When and Where to Watch
Reserve Bank of India tweeted: Watch out for the Monetary Policy statement of the RBI Governor @DasShaktikanta at 10:00 am on June 04, 2021 YouTube: https://youtu.be/adn3YQ2iqIA. Post policy press conference telecast at 12:00 noon on the same day. YouTube: https://youtu.be/kbY0_YqILoo
More enablers from RBI may be announced: Yes Bank Chief Economist
“The room available for traditional monetary policy is increasingly becoming constricted. In the absence of any further opportunity to cut rates, we expect the RBI to continue to use its balance sheet to keep financial market conditions easy,” said Yes Bank chief economist.
Further measures from the RBI could include:
1) More flexibility to banks to implementing restructuring plans in light of the hit to the economy due to the second COVID wave.
2) Similar to the COVID loan book for healthcare related sectors, the RBI can expand the scope for incremental lending to MSME and small businesses and an equal amount can be placed with the RBI at 25 bps lower than the repo rate.
3) Reduction in risk weights on bank lending to NBFCs/MFI that exclusively lend to MSMEs and small businesses.
On Inflation: Yes Bank Chief Economist
“On inflation, we expect the MPC to retain its projection of Headline CPI at around 5.0% level, similar to ours. Despite upside risks core inflation, on account of supply chain disruption, higher commodity prices, and pass-through of higher prices to end-consumers, the MPC is likely to draw comfort from the headline inflation remaining within RBI’s target band of 2-6% for FY22, and lower than FY21 print of 6.2%. We think that the RBI will tilt towards its efforts to kick-start growth and see through the inflation risks for the moment. Despite this, the MPC will not be able to bring down policy interest rates further as real policy rates are anyways in the negative zone. Further, savings interest rates at the 1-year point are mostly negative too and any further cuts in the interest rate can hurt the savers. Thus, the stance of monetary policy will be maintained while ensuring adequate liquidity in the system. Overnight call money rates are currently below the reverse repo rate and the RBI would continue to remain comfortable with the same,” said Yes Bank chief economist.
RBI Must Acknowledge Growth Hit: Yes Bank Economists
“Though the lockdown in the second wave is less stringent than the first and mobility indices have contracted at a lesser pace than last year, the decline in consumer sentiment remains evident. High frequency indicators like decline in E-way bills, moderation in PMI manufacturing, sequential contraction in vehicle registrations, and high unemployment rates already highlight the stress in consumption demand. In our view, despite unlocking of the economy in mid/end June, consumption demand is unlikely to recover steadfastly due to increased economic costs and health related uncertainty going forward,” said economists at Yes Bank.
RBI Policy: No headline changes
With the backdrop of growth related headwinds in both urban and rural sectors, increase in economic uncertainty, and rise in inflationary pressures, the RBI is expected to signal continuation of easy financial conditions and keep the repo and reverse repo rate unchanged, said economists at Yes Bank.
RBI Monetary Policy Meet: What to Expect
The Reserve Bank of India (RBI) is likely to maintain status quo on benchmark interest rate in its second Monetary Policy Meet this fiscal. The central bank is expected to keep the benchmark interest rate unchanged given COVID-19 uncertainty and fears over inflation.
