Mumbai:
The Reserve Bank of India (RBI) kept interest rates steady at record lows on Friday and reiterated its commitment to keeping policy accommodative as a second wave of COVID-19 infections threatens to derail the country's economic recovery.
Presenting the second bi-monthly monetary policy review, RBI Governor Shaktikanta Das announced that key repo rate — the short term lending rates to banks — will be kept unchanged at 4 per cent.
The RBI also kept the reverse repo rate, the borrowing rate, unchanged at 3.35 per cent
In a Reuters poll, all 51 economists surveyed had expected the RBI's monetary policy committee (MPC) to leave rates unchanged as Asia's third-largest economy grapples with various state lockdowns.
The growth projection for FY22 was scaled down to 9.5 per cent in view of the pain inflicted by Covid's second wave. The stance will continue to be accommodative, Das said.
Earlier, RBI had pegged its growth forecasts for this financial year at 10.5 per cent. There were expectations that the forecast could be lowered, given the recent hit of the second-wave lockdowns on economic activity.
The central bank projected the retail inflation at 5.1 per cent in the current financial year ending March 31, 2022.
The projection is well within the Monetary Policy Committee's target to keep the rate of inflation at 4 per cent with an upper or lower tolerance level of 2 per cent.
Taking into consideration the measures taken so far as well as the upside risks, Das said the CPI (Consumer Price Index) inflation is projected at 5.1 per cent during 2021-22.
This consists of 5.2 per cent in the first quarter, 5.4 per cent in the second quarter, 4.7 per cent in the third quarter and 5.3 per cent in the fourth quarter of this fiscal, with risks broadly balanced, he said.
According to Das, upside risks to inflation emanates from persistence of second COVID wave and consequent restrictions on activity on a virtually pan-India basis.
"In such a scenario, insulating prices of essential food items from supply side disruptions will necessitate active monitoring and preparedness for coordinated, calibrated and timely measures by both Centre and state governments to prevent emergence of supply side bottlenecks and increase in retail margins," the governor said.
The RBI) on Friday announced creating a special liquidity window of Rs 15,000 crore with a tenor of 3 years at the repo rate to provide liquidity support to the contact-intensive sectors hit by Covid-19.
The special liquidity window encourages banks to provide fresh lending support to hotels, restaurants, tourism, aviation ancillary services, and other services including private bus operators, car repair services, rent-a-car service providers, event/conference organizers, spa clinics, and beauty parlours/saloons.
These sectors have seen the biggest impact due to the second wave as authorities started imposing lockdown measures to curb the spread of the virus.
Sakshi Gupta, senior economist , HDFC Bank, said, "We expect Q1 growth at 15-16% as rural demand takes a hit and supply chain disruptions weigh on economic activity.
"The RBI revised up its inflation forecast to 5.1 per cent We see further upside risks to this forecast as input cost pressures continue to rise and feed into retail prices over the coming months. The announcement and increase in GSAP 2.0 amount is likely to bring further relief for the bond market. Inclusion of state development loans (SDLs) in the GSAP is likely to provide some relief for states borrowing costs with states under increased fiscal pressure due to the second wave.
"We expect 10 year yield at 5.95-6.05% for the coming months." Gupta said.
Churchil Bhatt, EVP & Debt Fund Manager, Kotak Mahindra Life Insurance Company, commented,“The Monetary Policy Committee (MPC) has left the benchmark rates unchanged in its June policy meeting, thereby prolonging its much needed support to the real economy. It has also decided to continue with its accommodative policy stance as long as necessary to revive growth on a durable basis. In light of the Covid 19 second wave, RBI has also revised down its GDP forecast to 9.5 per cent for FY22, while its FY22 CPI forecast is at 5.1 per cent.
Niraj Kumar,chief investment officer,Future Generali India Life Insurance Company said, “ With Today's Policy verdict, RBI continues to showcase its unflinching resolve to support the markets and economy, at a time when it’s juxtaposed with twin challenges of growth due to the second Covid wave and rising commodity prices obscuring the inflation outlook. The MPC has extended the financial safety net to assuage the stress in the system, while reassuring the market of maintaining ample liquidity and remaining accommodative to nurture growth as long as necessary.
The extension of a separate liquidity window for contact intensive sectors along with additional liquidity to SIDBI and the expansion of the scope of restructuring 2 framework to more borrowers, is a welcome move for the liquidity strapped sectors. Overall, it is a growth supportive policy focused on nurturing the nascent growth in the economy, he said.
. Surendra Hiranandani, Chairman and Managing Director, House of Hiranandani, said "By keeping the repo rate unchanged, the central bank has taken the step towards the right direction in current circumstances. With this the policy stance there is a growth oriented approach, and is much needed as the second wave ebbs.While the realty sector has been severely impacted in the second lockdown, the problems have been aggravated with a considerable rise in the cost of raw materials such as steel and cement. ''
However, one has to be mindful of the impact on prospective home-buyers due to the uncertain conditions. These set of buyers are apprehensive in coming ahead and have instead chosen to wait to buy a home. There is a need for stimulant policy measures that would enhance liquidity for the sector, ease credit provisions and increases buyer’s confidence. Any announcements in these forms would have been much appreciated, he explained.