RBI Monetary Policy Highlights: MPC revises FY22 CPI inflation outlook to 5.7%

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RBI Policy: Status Quo, Low Interest Rates To Boost Growth, Say Corporates

The MPC kept the repo rate unchanged at 4 percent. As expected, the stance of the monetary policy panel has been retained as 'accommodative'.

Here is what top analysts think of theRBI’s policy outcome.

Radhika Rao, Economist at DBS GroupResearch:"The tone on growth expectations was positive but cautious, as the ebbing second wave allowed for phased reopening and improvement in domestic activity. Stronger consumption data outturns by way of high frequency indicators, viz., registration of automobiles, electricity consumption, non-oil non-gold imports, consumer durable sales, etc. were cited as leading to an optimistic view. However, investment growth was still seen as anemic, but policymakers drew confidence that improving business surveys and operational efficiencies pointed towards a positive outlook."

Monetary Policy Review | MPC Tries To Thread The Needle

Central bank announces plan to absorb liquidity while retaining accommodative stance

The RBI is closely watching the stressed assets situation in the banking sector, particularly in the retail and micro, small and medium enterprises segments (MSME), said MK Jain, one of the deputy governors at the Reserve Bank of India. However, there is no alarming situation at this point, said Jain.

There is some stress visible in the retail and MSME segments. "We are closely monitoring...there is stress but not alarming," said Jain

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RBI Monetary Policy | Inflation Debate Gets Louder, Sensex Falls

Though the RBI says growth remains its focus during these uncertain times, inflation, too, seems to playing on the minds of MPC members, say analysts

RBI may come with some digital currency model in near future, says Deputy Governor

The RBIshould be able to come out with some model of digital currency in the near future and probably by the end of this year, said T Rabi Sankar, one of the deputy governors at the central bank.

The RBI is working on various aspects including the technology, distribution, and validation of this model Rabi Sankar said. In the past too, the RBI had spoken about its plans to introduce digital currency even as it has expressed concerns on the private virtual currencies.

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Sakshi Gupta, Senior Economist, Hdfc Bank, Gurugram: “The 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.” “The 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.” “The 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.”

Ravindra Sudhalkar, CEO at Reliance Home Finance:"The move by the Reserve Bank of India's Monetary Policy Committee to keep the repo rate unchanged at 4% was an expected move given the growth concerns hanging over the economy, especially from the impending third wave of the COVID19 pandemic. Even though inflation is high and a concern, any rate hike at this juncture would've been a deterrent to growth. Also, although the RBI maintained GDP growth forecast at 9.5% for FY22, Governor Shaktikanta Das has pointed out that the underlying conditions around aggregate demand are still weak."

Kunal Kundu, India Economist, Societe Generale, Bengaluru: “Announcement 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.” “As 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.” “For 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.”

Mr. Surendra Hiranandani, Chairman and Managing Director, House of Hiranandani:"The Consumer Price Index inflation rate of more than 6% for May-June was beyond the Reserve Bank of India’s (RBI’s) tolerance mark. The RBI’s accommodative monetary policy and unchanged low-interest rates could become a challenge for it if inflation spikes again. While the status quo maintained by the RBI is appreciated, the focus should be on boosting growth with the right fiscal measures and policy support. This is especially important at a time when the International Monetary Fund has cut India’s growth estimate from 12.5% in April to 9.5% in July.As the second wave of the COVID-19 pandemic comes to an end and supply chains show signs of recovery, the real estate industry is inching towards normalcy. We are hopeful that the RBI and the Central Government will make announcements that trigger demand and boost the residential market segment. Just like the fiscal measures adopted last year, we are keen to see steps that enhance the market’s momentum and spur greater economic growth."