RBI Monetary Policy: What market experts and economists are saying

Let’s check out what market experts and economists feel about the outcome of the Monetary Policy meeting.

Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services

Overall, there were no surprises in the policy today and it was broadly a non-event. Going forward, we fear that the real GDP growth could be lower than the RBI projections, with inflation falling broadly in line. Along with the rising threat from the Omicron variant, there is a possibility that a hike in reverse repo could be postponed to April 2022.

However, if growth turns out to be better than our expectations (or in line with/better than RBI projections) and the Omicron threat doesn’t materialise, a 15-bps hike in the reverse repo rate in February cannot be ruled out. The Union Budget will also play an important role in the next MPC meet.

Also read: RBI Monetary Policy: Economy not yet strong enough for self-sustaining, needs policy support, says Shaktikanta Das

Abheek Barua, Chief Economist, HDFC Bank

The RBI policy announcement was on expected lines as the central bank continued to support growth and sounded caution on the omicron risk.

The RBI kept its inflation forecast unchanged at 5.3% for FY22, signalling that it believes inflation to be more transient than permanent in nature. We expect inflation prints to surprise on the upside and average at 5.6% for FY22, driven by elevated input and fuel costs and as the base effect wanes off.

On liquidity normalisation, the RBI continued its auction based rate management policy, moving away from the reverse repo – so far the effective overnight rate – towards the repo rate through liquidity rebalancing from the overnight to the VRRR (variable rate reverse repo) window. We expect this to put further upward pressure on the short-end of the curve.

Upasna Bhardwaj, Senior Economist, Kotak Mahindra Bank

The MPC, as expected, maintained status quo on the policy rates and stance. The rhetoric, too, has remained focused on maintaining durable growth as long as inflation remains well in check. We continue to expect the RBI to fine tune the surplus liquidity to manage rates and consequently provide guidance on the operating target rate shifting closer to the repo rate. We retain our base case of reverse repo rate hike in February.

Dharmakirti Joshi, Chief Economist, CRISIL

We expect the RBI to continue to normalise its policy in a calibrated manner in the coming months, by hiking the reverse repo rate in February 2022 to reduce the gap with the repo rate to 25 basis points, followed by 25 bps hike in the repo rate in March 2022.

Also read: Key announcements made by Governor Shaktikanta Das

The first reason for this is the prevailing pressure on inflation. This, coupled with supply disruptions such as semiconductor shortages, has maintained pressure on producer margins. A pass-through of input-cost pressures to consumers, which was already happening in the past months, is likely to continue as domestic demand improves further.

Policy normalisation by the US Federal Reserve would be the second factor reducing the leeway for the RBI. Recent Fed minutes and remarks from Chairman Powell indicate their changing view of inflation not being transitory, and the possibility of increasing the speed of tapering next year. VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services

The MPC has again taken a decision in favour of growth by continuing with accommodative monetary stance and status quo in rates. More importantly, the guidance is also dovish with no indications of rate hikes in the immediate future.

The CPI inflation projection for Q3 and Q4 of FY22 at 5.1 percent and 5.7 percent, respectively, is an indication of the RBI’s belief that higher food inflation is temporary since it is caused by crop damages during unseasonal rains. Also, the central bank believes that lower crude prices and reduced petrol and diesel prices will “mitigate the cost push build-up”. Thus, a pro-growth policy and very positive from the market perspective.

Also read: RBI Monetary Policy: CPI inflation projected at 5.3% in 2021-22, says Shaktikanta Das

Madhavi Arora, Lead Economist, Emkay Global Financial Services

The MPC expectedly kept the key rates unchanged unanimously and reiterated its accommodative stance both on rates and liquidity. However, Prof Jayanth Varma’s possible dissent on continuation of accommodative stance for foreseeable future continues to keep MPC in a split state.

There were no material changes in growth and inflation outlook in near term. The focus was on communication on liquidity management key amid evolving market risks. As expected, the RBI did not opt for a reverse repo hike, and the policy is well used as a lever to prepare markets for a gradualist approach toward normalization through both communication and action.

However, the overnight liquidity management CY22 onwards will happen through the auction route, making fixed overnight reverse repo irrelevant and thus making the reverse repo floating. While this is welcome as far as liquidity repricing is concerned, we believe that SDF as a policy tool at the margin could have been tried in this policy.

Shiv Chanani, Head of Research, Elara Securities India

The central bank’s stance continues to remain supportive of growth as they highlight that key drivers of revival in investments is falling in place. At the same time, MPC realises that the recovery is nascent and not self sustaining unless supported by policy measures. Consequently, they are willing to look through the near term inflationary pressures and maintain an accommodative stance. We believe that this would help in revival of both investment and consumption demand, laying a strong base for strong economic growth going forward. Abhay Agarwal, Founder, Piper Serica

The RBI has maintained its policy of ‘first do no harm’, kept its stance accommodative, and kept its liquidity management options open. Clearly, the RBI’s focus is on making sure that the nascent post-COVID recovery is resilient and not just short-lived. So, it is quite sensibly pursuing flexible inflation targeting to ensure a ‘soft-landing’ rather than a hard one.

Overall, we expect that stock markets will be relieved that there are no negative surprises. The recent fragile recovery in consumer discretionary space like real estate and automobiles is expected to continue as there is greater certainty on borrowing costs and EMIs that drive consumer decisions.

The short-term funds are expected to yield slightly higher returns now. The fixed-income investors should continue to stay in the shorter duration funds as the long-term funds may see a price erosion in case of an increase in the long-term G-Sec rates.

Also read: RBI Monetary Policy: UPI cap on IPO, gilt investments raised to Rs 5 lakh

Raghvendra Nath, MD, Ladderup Wealth Management

On the expected lines, the RBI has continued with its accommodative stance which, we believe, is the right decision. Easy monetary policy and low interest rates shall play a crucial role in reviving demand and kick-start the capex cycle. Moreover, inflation is not a big worry right now as most of the recent spike in inflation was caused due to higher commodity prices that are driven by international factors.

The fear of coronavirus derailing the economy once again is real and highly probable. Such times require high degree of monetary and fiscal support, and the RBI is rightly dealing with it through its easy policy.

Sonam Srivastava, Founder, Wright Research

The markets will cheer the policy as it is accommodating to growth, and the country’s inflation expectation analysis remains positive. This is in line with the expectations of the markets and thus, positive sentiment is likely to bolster growth in sectors such as banking, real estate, export-import and manufacturing.

The stock prices of companies in these domains are likely to see a rise in price. It is indeed a great time for investors to be invested in the market.

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