RBI Monetary Policy 2021 Highlights | Have major concerns about cryptocurrencies, no change in our position: Governor Shaktikanta Das

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There was no surprise today, with the RBI keeping its headline key lending rate unchanged at 4% as per market expectations. The bigger takeaway was a downward revision of real GDP growth for 2021-2022. While earlier the figure was 10.5%, the expectation is now at 9.5%. This was largely driven by a downward revision of Q1 GDP, which was expected to come in at 26.2% but was revised down to 18.5%, a delta of -7.7 percentage points. We hope that going forward, GDP numbers will be aligned with expectations. In intraday trading, the markets have been flat through the day.

Today, the market remained completely flat, however, select mid-cap and small-cap stocks closed higher with decent gains. The NBFCs closed higher while the bank stocks ended lower. Global facing auto companies like Bharat Forge and Tata Motors did exceptionally well and closed at the highest point of the day. We saw some value buying in the metal sector and stocks like NMDC, VEDL and JSW STEEL closed in the positive territory. On a weekly basis, for the third consecutive week, the market closed in the positive territory under the leadership of the Energy sector. NBFCs, Auto and Commodities also helped the market to close above the highest level of the previous rally which was at 15431. During the week FIIs sold to the tune of Rs 4500 crores but in the month of June, to date, the FIIs infused net Rs 1550 crores in the equities. Technically, the 15550 and 15400 levles would be major supports for Nifty and on the higher side 15800, 16000 and 16200 would be major levels to arrest the bull run. The basic trend of the market is bullish but in the absence of domestic flows, our markets would start following the global cues, which are mixed and sensitive to the pace of inflation. In the coming week, global cues could dominate the market. For the week the strategy should be to buy on dips between 15550/15450 with a final stop loss at 15350 levels. The focus should be on Auto, Insurance, Commodities and technology companies.

RBI has maintained stability in interest rate and liquidity in the system. This will encourage the credit off-take and maintain benign interest rate scenario in the money market system. The special liquidity to SME sectors is the further boost to GDP growth for FY2022

ICC highly appreciates Apex Bank’s decision to step up its efforts to ensure liquidity in the system with another G-SAP worth Rs. 1.2 lakh crore planned for this fiscal year. In addition to that, RBI has kept the repo rate unchanged at 4 per cent. Which, ICC feels shall further help home buyers. As prevailing low home loan rates are already enticing for homebuyers, with inflation set to be high and economic recovery slow due to surge of Covid, residential real estate will continue to attract investment as it is a safe-haven asset.

While the MPC has toned down the GDP forecast to 9.5%, it has resorted to extend measures to support growth. The extension of 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 indeed a welcome move for the liquidity strapped sectors. Overall, a Growth supportive policy focused on nurturing the nascent growth in the econom

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 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 targeted redressal of concerns around absorption of elevated borrowing programme in FY22 by way of announcing another round of GSAP 2 of 1.2 lakh cr, is indeed another hallmark move by MPC.

In line with BWR expectations, RBI has maintained its status quo on policy while reiterating that this stance will continue as long as necessary to support growth and help an economy battling for revival. Opening a Rs 15,000 crore On-Tap Liquidity Window for the stressed contact intensive sectors is expected to provide much-needed succour. Continuing with its measures to ensure smooth liquidity management and accommodative financial conditions, RBI announced G-SAP 2.0 of Rs 1.2 lakh crores. SLF of Rs 16,000 Crore to SIDBI for on-lending and refinancing and the enhancement in limit for restructuring of loans by banks to Rs 50 crore from Rs 25 crore are welcome moves to support MSMEs. We expect that the steps announced would increase consumption demand and aid incremental economic activity.

The RBI has once again come out with proactive set of announcements to revive the economic growth amid surge in second wave of pandemic. The decision of keeping the repo rate unchanged along with maintenance of accommodative stance is on expected lines and necessary to mitigate the growth uncertainty and inflation concerns. Announcement of on tap liquidity facility of Rs 15,000 crore will ensure credit flow to the contact intensive sectors and MSMEs including hotels, tourism, aviation, etc. which have been adversely impacted. Further, resolution of stress of MSMEs has also been addressed through enhancement of exposure thresholds to Rs. 50 crore under resolution framework 2.0. Availability of NACH on all days of the week will further the financial inclusion objectives through Direct Benefit Transfer (DBT).

We welcome RBI’s restructuring scheme under resolution framework 2.0 as it offers the much-needed relief to select MSMEs, non MSMEs small businesses which have been impacted drastically in the second wave of Pandemic The availment of this restructuring scheme will not only ensure smooth flow of liquidity, at reasonable costs but will also benefit the MSME’s in long run by restructuring the account without classifying it as an NPA. Further, it will act as an opportunity for lenders like us to grant surplus financial support that will empower small and medium businesses (SMBs) to progress without obstacles.

While repo rate will continue at 4.00% and reverse repo rate at 3.35% amid Covid-19 uncertainty, most banks have used this as the benchmark for their loans. A continuation of this low interest rate regime works well for borrowers. With no hike in repo rate, homebuyers can plan for a home loan in the near future while also getting enough time for their home buying process and still can get loans at prevailing low rates. At today’s time as we are seeing RBI and banks are now focusing on other essential sectors to bring all sectors back in green which will work well in reshaping the economy.

As was expected, there were no change in the headline monetary policy rates as also the stance. In his statement, the Governor acknowledges the growth risks and now projects a lower real GDP growth for the year at 9.5 percent. Inflation projections have been raised too. Given the current evolution of the growth-inflation dynamics, there was absolutely no scope for the RBI to change its policy rates. Instead, the RBI endeavoured to keep the system fluid with adequate liquidity and also targeting rescue operations for the most stressed sectors in the economy. Consequently, a liquidity window was opened up for the contact intensive sectors that continue to totter with the burden of the pandemic. SIDBI was provided with a special liquidity facility to on-lend to MSMEs, specially the smaller ones. To enable the government to borrow at attractive rates, another round of bond buying was announced under G-SAP 1.0 while a G-SAP 2.0 was announced. We think that over the current FY, the RBI will not have any leeway to change its interest rates to provide support to the economy. Instead, it will do whatever necessary to push credit and liquidity to the stressed areas of the economy so as to prevent erosion of the supply chains in the economy.

The RBI policy was on expected lines with no change in rates and a continued accommodative stance. The RBI maintains its focus on supporting growth and ensuring orderly interest rates . The increased GSAP allocation was in line with its focus. GDP projections were reduced downwards to incorporate the impact of the second wave of the pandemic on the economy. The inflation projections need to be tracked aggressively given the emergence of commodity and food inflation globally since a comeback of inflation may make the job of RBI more tricky going ahead.