RBI Monetary Policy LIVE Updates: The Reserve Bank of India (RBI)'s Monetary Policy Committee (MPC) has kept the repo rate unchanged at 4 percent, amid rising inflationary pressure and a grim economic outlook. RBI Governor Shaktikanta Das said that the real GDP growth will remain negative in FY21.
The MPC had convened for this three-day meeting on August 4. About 50 percent of the economists had expected a rate cut while the rest expected a pause in repo rates. In 2020, the MPC has already slashed the repo rate by 115 bps amid the COVID-19 outbreak and consequent economic fallout.
Here are the five key takeaways from the RBI Monetary Policy:
--Repo rate: The repo rate has been kept unchanged at 4 percent. Consequently, the reverse repo rate under the LAF remains unchanged at 3.35 percent and the marginal standing facility (MSF) rate and the bank rate at 4.25 percent.
--Growth: Amidst the Coronavirus outbreak, RBI governor Shaktikanta Das has said that for FY21 as a whole, real GDP growth is expected to be negative. He added that an early containment of the COVID-19 pandemic may impart an upside to the outlook.
--Inflation: RBI governor Shaktikanta Das said that headline inflation may remain elevated in Q2FY21, but may moderate in the second half of the year (H2FY21) aided by large favourable base effects.
--Restructuring of loans: Amidst cash flow disruption due to COVID-19, RBI will allow stressed MSME borrowers to restructure their debt under the existing framework, provided their accounts with the concerned lender were classified as standard as on March 1, 2020. But this restructuring will have to be implemented by March 31, 2021.
--Special liquidity facility: RBI governor Shaktikanta Das said that an additional special liquidity facility of Rs 10,000 crore will be provided at
the policy repo rate to National Bank for Agriculture and Rural Development (NABARD) and National Housing Bank (NGB). This will consist of Rs 5,000 crore to NHB to shield the housing sector from liquidity disruptions and augment the flow of finance to the sector through housing finance companies (HFCs). There will also be Rs 5,000 crore to the to reduce the stress being faced by smaller non-bank finance companies (NBFCs) and micro-finance institutions in obtaining access to liquidity.
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Niranjan Hiranandani, President, Assocham:
A Positive step by Reserve Bank of India to pay heed to India Inc’s long pending demand of Onetime restructuring of loans without classifying them as NPAs, by setting up an expert committee steered by KV Kamath. Opening up the window for restructuring of loans to companies, individuals and MSME under mandated safeguards grants breather to the liquidity strapped industry.
A flexible repayment scheme under the new resolution framework shall bring in the much-needed relief to resume operations smoothly. He additionally acknowledged the fact accorded by the RBI governor of maximum transmission of rate cut benefits percolating down the banking stream, which shall be reflected in easing the credit supply to meet working capital needs of the Industry across the board.
Additionally, liquidity of Rs 5,000crores announced to be infused in NHB will definitely aid the reeling sector to tide over the liquidity crisis.
The enhanced finance flow should see developers in need of last mile funding being able to complete their stalled projects. This indicates that the fiscal measures by RBI have started showing the positive outcomes on the economy, he concluded.
Unmesh Kulkarni, Managing Director and Senior Advisor, Julius Baer India:
With the start of Covid-19, RBI’s stance/priority had clearly changed from containment of inflation to addressing the stress in the economy and tackling growth-related challenges. In today’s policy, RBI MPC reiterated its commitment to address growth challenges of the economy (especially second-wave effects of Covid-19), by maintaining an accommodative stance for as long as necessary. This implies that RBI could be looking at an extended period of low rates.
The announcement to harmonize the capital charge (for market risk) treatment of investment by banks in Debt Mutual Funds / ETFs and direct debt instruments, augurs well for the bond market, as there could be higher participation by banks in the bond markets over a period of time.
Rajnish Kumar, Chairman, SBI:
The Reserve Bank of India’s today’s monetary policy statement draws a fine balance between the challenges posed due to COVID-19 pandemic shock and the need to support growth and financial stability. On the macroeconomic front, the outlook to growth continues to be negative with RBI refraining to give any number to the extent of GDP contraction on account of COVID-19. The asymmetric recovery across rural and urban areas poses challenge in policy formulation. The outlook on inflation is equally uncertain as supply shock has limited the scope of monetary policy in containing risk. On the balance, demand shock appears to net out the supply shock on price levels.
On the regulatory and development policy front, the RBI has carefully addressed the concerns emanating from the wider market participants. Notably, the RBI has addressed the need to offer some form of restructuring facility for standard accounts that are facing difficulty in debt restructuring. We welcome the fact that a new Resolution Framework for COVID-19-related Stress facility has been extended to large corporate, SME and personal loans with necessary safeguards in each segment.
The announcement on CRR, mechanism to check and track multiple operating accounts by large borrowers will benefit the industry at large. Harmonising the capital charge for market risk for debt and equity mutual funds is also a good move towards capital conservation given the volatility has increased after COVID-19 pandemic. In conclusion, the decision to hold the policy rate is a prudent one in the prevailing circumstances as the trajectory of economic growth, inflation and external demand continues to remain uncertain. RBI’s calibrated approach is in perfect consonance with evolving situation while keeping enough headroom for the future.
CARE Ratings:
The resolution plan announced by the RBI is big relief to the entities who are under severe stress due to pandemic situation.Harmonisationof capital charge for market risk to bode well for the corporatebond market. Additional liquidity facility provided toNABARDandNHBwill further support credit push in the economy. Revision in the priority sector lending guidelines will ensure credit pickup in the areas where it is yet to see any traction. With persistent economic growth concerns, we expect that the RBI is likely to announce addition rate cuts at opportune time after assessing the situation.
Anagha Deodhar, Economist, ICICI Securities:
The MPC’s decision to keep rates on hold is in line with our expectation. Although the committee delivered large rate cuts since the onset of COVID-19, credit growth has been falling consistently. This shows that the ability of monetary policy in stimulating growth is constrained in the current situation. The MPC’s unanimous decision to pause is an acknowledgment of the same.
However, the RBI took a series of measures outside the purview of MPC to provide support to stressed sectors. Measures such as loan restructuring, increased in LTV for gold loans, additional liquidity facilities for NHB and NABARD are expected to have favourable impact.
Shishir Baijal, Chairman & Managing Director, Knight Frank India:
Today’s announcement by the RBI Governor is welcome as it addresses one of the long-standing requests by the real estate sector.The loan resolution plan, which allows for payment moratorium up to 2 years, for corporate and personal borrowers should provide a breather to stressed real estate developers and individual borrowers in the housing segment alike. We look forward to the recommendations of the Kamath Committee on the details for the real estate segment. We also welcome the announcement of further liquidity infusion to the tune of Rs 5,000 Crores to National Housing Board (NHB) which should be able to provide some relief during these times of crisis.
While the sector was looking at a further revision in policy rate, to boost demand, we appreciate the accommodative stance by the RBI, in the wake of high rate of inflation which may have necessitated keeping policy rates unchanged. The Governor revealed that real GDP of India will trend in the negative territory for majority of FY 20 – 21, which causes concern for the real estate sector as economic growth and stability is a key ingredient for its long-term growth.
We hope that these measures will provide relief to the real estate sector and help them maintain their status till the economy starts to regain its growth momentum.
Suvodeep Rakshit, Vice President & Senior Economist at Kotak Institutional Equities:
The RBI MPC’s decision on keeping policy rates unchanged was not unexpected. The efficacy of rate cuts is anyway low in the current juncture and the past rate cuts are still feeding into the system. The MPC was cautious with adequate concerns on the evolution of inflation trajectory while being fully supportive of growth prospects as and when inflation trajectory allows. We expect the RBI to pause in the near term with possibility of rate cut (if any) visible from the December policy when inflation starts to fall. Going forward, liquidity measures will be important to watch for as the central and state governments borrow heavily under the revised borrowing plans. More importantly, the RBI allowed for resolution plan under the June 7, 2019 notification ofPrudential Framework for Resolution of Stressed Assets along with a separate framework for personal loans too. This will help in alleviating some of the stress that is likely to emerge as well as address some of the most affected sectors. The provisioning norms along with rule-based and time-bound resolution plan will likely ensure that banks are prudent in utilizing this window and addresses genuine stressed cases.
"RBI's caution on rates is driven by the fact that retail inflation is rearing its ugly head with food inflation remaining sticky and higher. RBI therefore expects elevated inflation readings for a few more months, although core inflation is soft. The positive thing is that RBI would continue to be watchful and has not yet cried halt to the easing cycle," said RK Gurumurthy, Head – Treasury, Lakshmi Vilas Bank.
Real estate sector welcomes Rs 5,000 crore additional liquidity infusion
The Reserve Bank of India (RBI) Governor Shaktikanta Das on August 6 announcedan additional special liquidity facility of Rs 5,000 crore for National Housing Bank, a ‘much-needed’ move to relieve the real estate sector battling liquidity issues in COVID-19 times.
"Today’s lack of a rate cut from the RBI - similar to the December 2019 MPC meeting - once again establishes the primacy of inflation over growth, no matter what the extent of the economic downturn. Clearly, inflation being within the forecast range is a necessary condition for easing, and given the supply disruptions, especially in food, it may prove to be difficult for the RBI to resume easing for some time, from an inflationary point of view," Barclays said in a note.
"In the MPC’s assessment, global economic activity has remained fragile and in retrenchment in the first half of 2020. A renewed surge in COVID-19 infections in major economies in July has subdued some early signs of revival that had appeared in May and June. Global financial markets, however, have been buoyant, with the return of risk-off sentiment inserting a disconnect from the underlying state of the real economy." Shaktikanta Das said.
"For the year 2020-21, as a whole, real GDP growth is expected to be negative. An early containment of the COVID-19 pandemic may impart an upside to the outlook. A more protracted spread of the pandemic, deviations from the forecast of a normal monsoon and global financial market volatility are the key downside risks," the MPC said in its statement.
Banks, auto stocks trade flat after RBI MPC keeps interest rates unchanged; realty stocks gain
The Indian stock market continues to trade in the green after the RBI MPC kept repo rate unchanged at 4 percent.Sensex is up 237.37 points or 0.63percent at 37900.70, and the Nifty jumped 70.30 points or 0.63percent at 11172.
MPC expects inflation to stay elevated in Q2FY21 but is of the view that is it likely to ease in H2 aided by favourable base effects, said RBI Governor Shaktikanta Das.
Speaking to CNBC-TV18, State Bank of India(SBI)ChairmanRajnishKumar said "The policy ticks all boxes and that RBI and the govt are providing necessary support to the financial system."
Mixed bad for outlook
RBI governor Shaktikanta Das said that MPC noted that the recoveryof the rural economy is expected to be robust, buoyed by the progress inkharif sowing.He added that the manufacturing firms expect domestic demand to recovergradually from Q2 and to sustain through Q1FY22. On the other hand, Das said that consumer confidence turned more pessimistic in July relative to thepreceding round of the Reserve Bank’s survey.
RBI policy meeting: When it comes to dispute resolution, RBI Governor Shaktikanta Das on August 6 announced introduction of an online dispute resolution (ODR) mechanism for digital payments.In a statement following the Monetary Policy Committee (MPC) meeting, Das said, "A scheme of retail payments in offline mode using cards and mobile devices, and a system of on online dispute resolution (ODR) mechanism for digital payments will also be introduced."
RBI monetary policy:
Kuntal Sur, Partner and Financial Risk and Regulation Leader, PwC India said, "Going by the market expectations, RBI is setting up an expert committee headed by KV Kamath for corporate and personal loans resolution plans, which will look into sector specific financial parameters for restructurings. The committee also changed the weightage of Priority Sector Lending in favor of neglected districts and good news for startups and renewable energy sector as these are brought under PSL.”
Benchmark indices has extended the gains after Reserve Bank of India's monetary policy committee has kept the repo rate unchanged at 4 percent. Except auto all the other sectoral indices are trading in the green.
No further rate easing
Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank said thatMPC's caution on uncertainty on inflation trajectory suggests that chances of further easing will henceforth remain a function clearly of evolution of supply side shocks. She added that the next few readings still elevated near 6 percentand hence theydo not see any rate easing in at least the October meeting. On a positive note, she added that the other regulatory and development measures announced today will go a long way in ensuring financial stability.
All members of the MPC, including Chetan Ghate, Pami Dua,RavindraDholakia, Mridul K. Saggar, Michael Debabrata Patra and RBI governorShaktikanta Dasunanimously voted for keeping the policy repo rateunchanged and continue with the accommodative stance as long as necessaryto revive growth and mitigate the impact of COVID-19 on the economy, whileensuring that inflation remains within the target going forward.
Record issuance of corporate bonds
Lower borrowing costs have led to record primary issuance ofcorporate bonds of Rs 2.09 lakh crore in the first quarter of (April-June) 2020-21. In particular, market financing conditions for NBFCs, which had becomechallenging, have largely stabilised in the wake of targeted policymeasures. RBI governor Shaktikanta Das said that for AA+ rated 3-year NBFC bonds, spreads over similar tenorG-secs have narrowed from 360 basis points on March 26 to 139 basispoints on July 31, 2020.
RBI governor Shaktikanta Das said that the monetarytransmission has also improved considerably. The weighted averagelending rate (WALR) on fresh rupee loans sanctioned by banks declined by162 basis points during February 2019-June 2020, of which 91 basis pointstransmission was witnessed during March-June 2020.
Restructuring for
MSMEsA restructuring framework for MSMEs that were in default but‘standard’ as on January 1, 2020 is already in place. RBI governor said that the scheme hasprovided relief to a large number of MSMEs. With COVID-19 continuing todisrupt normal functioning and cash flows, the stress in the MSME sectorhas got accentuated, warranting further support. Accordingly, it has beendecided that stressed MSME borrowers will be made eligible forrestructuring their debt under the existing framework, provided theiraccounts with the concerned lender were classified as standard as onMarch 1, 2020. This restructuring will have to be implemented by March 31,2021.
Flexibility for jewellery sector
As per extant guidelines, loans sanctioned by banks against pledgeof gold ornaments and jewellery for non-agricultural purposes should notexceed 75 percent of the value of gold ornaments and jewellery. With aview to mitigating the impact of COVID-19 on households, RBI governor Shaktikanta Das said that it has been
decided to increase the permissible loan to value ratio (LTV) for such loansto 90 percent. This relaxation shall be available till March 31, 2021.
RBI policy: To enhance safety of cheque payments, RBI governor Shaktikanta Das said that it has been decided tointroduce a mechanism of positive pay for all cheques of value Rs 50,000and above. This will cover approximately 20 percent and 80 percent oftotal cheques by volume and value, respectively. Operational guidelines inthis regard will be issued separately
RBI governor Shaktikanta Das said, "We shall remain alert andwatchful and collectively do whatever is necessary to revive the economyand preserve financial stability. Courage and conviction will conquer COVID-19."
COVID-19 war is not over, says RBI governor
RBI monetary policy: RBI governor Shaktikanta Das said that the war against COVID-19 is intense with the world bracingfor a second wave. He said that while the pandemicposes a challengeof epic proportions, true grit will take India to victory. "These challengeswill increase ourresilienceand self belief," he added.
An innovation hub will be set up by the Reserve Bank of India in the near future, says RBI governor Shaktikanta Das. Online dispute mechanism for digital payments will be introduced, says Das.
Review of priority sector lending guidelines have been reviewed, says RBI governor Shaktikanta Das. He added that an incentivisationscheme will be launched for banks.
Loan to value for loans to 90% will be provided for the jewellery sector, says RBI governor Shaktikanta Das.
RBI is constituting an expert committee headed by veteran banker KV Kamathfor resolution plans with detailed guidelines, says RBI governor Shaktikanta Das.
New liquidity infusion for NABARD, NHB
RBI monetary policy: RBI governor Shaktikanta Das says that an amount of Rs 10,000 crore of additional liquidity will be provided to NABARD and National Housing Bank. This he said he will help NBFCs and housing sector tide over the liquidity crisis.
RBI governor Shaktikanta Das says regulatory response has to be dynamic, proactive and balanced during the COVID-19 crisis. He says fully mindful of RBI's responsibilities to maintain financial stability.
Abundant liquidity has also supported other segments like mutual funds, says RBI governor Shaktikanta Das. He added transmission of rate cut has been better.
RBI governor Shaktikanta Das says even for the lowest investment grade bonds, the spreads have come down significantly.
Transmission is being encouraged through LAF
Transmission of rate cut of MPC would not be possible without adequate liquidity in the system, says RBI governor Shaktikanta Das. Injections and absorptions through LAF has enhanced transmission, he added.
I continue to remain an eternal optimist, says RBI governor Shaktikanta Das.
RBI credit policy
Real GDP growth will remain in the negative, says RBI governor Shaktikanta Das. However, he said that any positive news on the COVID-19 containment efforts would change this scenario.
MPCis expected inflation to stay elevated inQ2FY21 but is of the view that is it likely to ease in H2 aided by favourable base effects, says RBI Governor Shaktikanta Das.
The merchandise exports contracted for fourth consecutive month though the pace of contraction hasmoderated, says RBI governor Shaktikanta Das.
Inflation stays high, says RBI governor
Domestic food inflation has remain elevated across economies ever since the Coronavirus outbreak, says RBI governor Shaktikanta Das. But he said that agriculture sector prospects have improved with the good monsoons and rise in Kharif sowing area, added Das.
Global economic activity has remained fragile said RBI governor Shaktikanta Das. But he said that global financial markets have been buoyant.
