RBI Monetary Policy HIGHLIGHTS: No repo rate cut for 5th straight MPC; maintain accommodative stance

The first policy of this financial year is surely positive from a bond market sentiment perspective. It will also help reduce some volatility in an environment where market views around the broader macro trends of growth and inflation are still evolving. The current steepness in the yield curve along with this RBI policy makes the risk-return tradeoff attractive for most debt funds. Funds running constant duration strategies in the 1-3 year space and reducing duration strategies across the yield curve offer this good risk-return tradeoff. As the economic and financial system normalization gathers pace, we also expect Credit Funds to regain ground-driven by higher balance sheet visibility & comfort and reasonable spreads. Amit Triphati, CIO- Fixed Income, Nippon India Mutual Fund

RBI’s first monetary policy of FY22 was on expected lines with rates unchanged and accommodative stance retained. The Governor’s underlying commentary was dovish with continued priority on supporting economic revival measures through ample liquidity to all productive sectors. Recognising the key role played by NBFCs in making credit available to the last mile, on tap TLTROs and bank lending to registered NBFCs for on lending to priority sector has been extended by 6 months to September 30, 2021 and this will be particularly useful in supporting & nurturing financial needs of rural economy and semi-urban businesses, micro/small/individual operated businesses amid the current Covid-19 protocols. Umesh Revankar, Vice Chairman & MD, Shriram Transport Finance

All members of RBI MPC decided to keep key rates unchanged and stance as accommodative and pledged to continue to sustain growth on durable basis. Some concern has been expressed on input cost pressures which can feed into inflation particularly commodity prices and logistic risks. However overall RBI indicated that there are both downward and upward pressures on inflation reflecting their stance that they likely do not see inflation as a major concern. In this backdrop the continuation of the FIT (flexible Inflation targeting) Regime for next 5 yrs is also seen as a validation of its success since past five years and gives a good measure of policy continuity. Bekxy Kuriakose, Head – Fixed Income, Principal Asset Management 

The Reserve Bank of India (RBI) has assured markets of continuation of its accommodative, growth-supportive stance till growth trajectory is on a firm footing. The monetary policy committee (MPC) sees upside risks to inflation driven by higher commodity prices balanced by downside inflation risks due to Covid’s second wave. To moderate the large systemic liquidity surplus, RBI has decided to conduct longer tenor variable rate reverse repo operations. Additionally, in order to ensure orderly evolution of yield curve, RBI has announced a secondary market bond purchase of Rs 1 lakh crore during the first quarter of FY22. We expect, given the high uncertainty around near term growth prospects, MPC will remain accommodative at least through the first half of FY22.  G Murlidhar, MD & CEO, Kotak Mahindra Life Insurance

Home loan interest rates in India have been the lowest in the past couple of years and this has led to a significant recovery in transactions in all classes of housing – affordable, mid-segment and luxury. As the apex bank has kept the rates unchanged, we expect housing demand to continue its upward trajectory in 2021, and the overall positive economic indicators shall further help home buyers to close and finalize. Ankush Kaul, President (Sales & Marketing) – Ambience Group

With the role of the real estate sector in generating employment and economic activity, one would usually expect RBI to cut repo rates in order to boost consumption. It also goes without saying that the real estate industry’s perennial hope is fixed on lower interest rates. Any further reduction of the repo rate would have aided in ensuring an adequate flow of capital in the market. However, home loan interest rates have already gone down substantially over the last year, and are presently at an all-time low. Homebuyers will continue to take advantage of the lowest ever home loan interest rates and with the emerging need, the demand for housing is going to sustain and many fence-sitters will take the plunge and make the purchase. With improved GDP growth estimated in the near future, we expect that the real estate sector will contribute a substantial share to overall economic development. Ramani Sastri – Chairman & MD, Sterling Developers Pvt. Ltd

The overall sentiment in the market started gaining momentum as people started to move out of the shadow of the economic crisis resulting from the COVID 19 pandemic. A rate cut would have been beneficial for the consumers and added further impetus to the already upward swing in spending sentiment for the real estate market. However, the recent surge in COVID-19 infections has created uncertainty over economic growth recovery trajectory. We are hopeful the economy will recuperate soon. Farshid Cooper, MD, Spenta Corporation

The RBI continues to maintain an accommodative stance along with a dovish outlook, which hasn’t been much of a surprise to the Street. The repo rate along with the GDP forecast of 10.5% for FY22 was inline with expectations and infact the bond market cheered with a dip in yields post the announcement. The GSec acquisition programme of Rs 1 lakh crore for this quarter was the clincher in the entire speech, however, there was only little the MPC could do given the uncertainty on the rising number of cases and vaccination drive. While their attempts to flatten the yield curve and enable sufficient liquidity through bond purchases in the system have worked in the economy’s favour so far, it will have to be seen how prompt the RBI remains if the condition worsens given the renewed lockdowns in a few states in India. The policy lagged aggressiveness and was more balanced this time, nevertheless the efforts do seem positive for the time being. Jimeet Modi, Founder & CEO, Samco Group

The monetary policy continues to be growth-centric, despite the underlying upside risks to inflation. This is so as it believes that inflation today is short-term in nature while growth has to protect for long term sustainability. Although the assurance of retaining the accommodative monetary policy stance to support growth reduces the likelihood of a rate hike at least in H1 FY22, it also rules out the likelihood a rate cut. CARE Ratings

Implications: This would help rein in volatility in yields, boost market sentiments and aid in the government’s borrowing programme. This will run along with the other OMOs, Operation twist and LAF measures and hence add to these measures. CARE Ratings

This will help to absorb surplus in the system and bring stability in the markets CARE Ratings

Extension of deadline of on tap- TLTRO Scheme by a period of 6 months till 30 September’21.
Implications: Ensures availability of funds for the designated sector i.e. the 26 stressed sectors and NBFCs.
Special refinance facility of Rs.50,000 crore to All India Financial Institutions (AIFIs) to facilitate fresh lending in FY22.
Under this facility NABARD is to receive (Rs. 25,000 crs), NHB (Rs.10,000 crore) and SIBDI (Rs.15,000 crs)
Implications: Makes available funds for agriculture and allied activities, rural non-farm sector, NBFC-MFIs, housing sector and MSMEs.

CARE Ratings

The RBI’s decision to maintain its accommodative stance was on the expected lines in light of the recent resurgence of Covid-19 infections and its potential to cause the on-going economic recovery to stumble. The prevailing low home loan rates are already enticing for homebuyers. It’s a high time bank needs to pass on the benefits to the homebuyers. With auspicious occasions like Gudi Padwa and Akshaya Tritiya already round the corner, the real estate sales are expected to be further driven by developer discounts and flexible payment plans. Bhushan Nemlekar, Director, Sumit Woods Limited 

The RBI and especially the MPC needs to be commended for maintaining its accommodative stance for more than a year now. It’s approach, towards tackling the situation created by the pandemic and steps taken to help revive the economy, will go down in History as being one of the finest. Keeping in mind the resurgence of COVID infections across the country, a slight reduction in the key rates would have been widely celebrated. With the temporary reduction in transaction costs being withdrawn, in states like Maharashtra, the expectation amongst stakeholders of the industry is that the banks should now further sweeten the lending rates, at least till such time that the economy gets back to the pre-COVID levels. Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory

Opening up NEFT and RTGS facilities to digital payment intermediaries is a big move by the RBI and aligned with its policy push for digital payments. Given the exponential growth in digital payments, dominated by the UPI infrastructure, this move will allow better product innovation and integration. It will also reduce systemic risk for digital payments. Shilpa Mankar Ahluwalia, partner and head of fintech, Shardul Amarchand Mangaldas & Co.

The actions taken by countries during the coronavirus pandemic to prevent a deeper economic downturn may have unintended consequences, according to a top IMF official. The global economy is beginning to emerge from the economic shock caused by the COVID 19 pandemic, Tobias Adrian, Director of the IMF’s Monetary and Capital Markets Department, told reporters at a news conference here on Tuesday. 

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The Reserve Bank of India on Wednesday retained the economic growth projection for the current financial year at 10.5 per cent, while cautioning that the recent surge in COVID-19 infections has created uncertainty over the economic growth recovery. In its last policy review, the RBI had projected a GDP growth rate of 10.5 pc for FY’22.

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While a status quo in terms of policy rates was factored in, the big positive has come in terms of the transparency of the OMO calendar through the G-sec acquisition programme (GSAP), which is likely to support and stabilize long term yields. In this regard, RBI has announced GSAP of Rs. 1 lakh cr in 1Q FY22, of which Rs. 25,000 cr would be conducted on 15th April’21. This has provided some relief to the 10-year g-sec yield. Nitin Shanbhag, Head – Investment Products, Motilal Oswal Private Wealth Management

The Reserve Bank of India (RBI) on Wednesday announced an extension of interim ways and means advances (WMAs) limit of Rs 51,560 crore to state governments till September, to help them tide over the financial stress posed by the second wave of COVID-19. WMAs are temporary advances given by the RBI to the states to tide over any mismatch in receipts and payments.

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While the MPC’s decision to keep rates and policy/ liquidity stance unchanged doesn’t come as a surprise, the statement does aim at addressing the key concerns and questions which had been weighing on the market sentiments. The MPC has clearly prioritised growth even as the risks to inflation have been adequately addressed.

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The first RBI policy of FY’22 with its continued accommodative stance to maintain liquidity surplus in the market can be viewed as being pragmatic. Though the RBI moves away from time-based guidance, it has prudently provided timelines to its liquidity-focused measures providing cushioning to the financial markets. The equity markets will cheer with the announcement on RBI’s Government Securities Acquisition Programme. This will ensure government borrowing at a low cost and be able to address pandemic-related adversities from both economic and healthcare aspects. Rohit Poddar, Managing Director, Poddar Housing and Development Ltd

Last year, the RBI had rejected a resolution plan by an ARC for a telecom company.  In the distressed asset market, the investors have few tools to optimize their investment and participate in the resolution of NPAs. This move of the RBI created confusion in the market by endorsing an interpretation of the SARFESI Act that ARCs cannot invest in equity.  In today’s monetary policy announcement, it is refreshing to note that the RBI reckons ARC’s role is to build a robust market for NPA resolution. ARCs need to be used not only as a tool to recover NPAs but also to resolve NPAs. Indeed, it is time to evaluate ARC’s role wholistically. Nishant Singh, Partner, IndusLaw

Commitment of an accommodative stance and ensuring measures to maintains liquidity and minimising inflation will certainly help in facing challenges caused by the second wave of the COVID-19 pandemic. In addition to this setting up a committee to enable ARCs to meet the growing requirements of the financial sector will also facilitate distressed entities in managing their balance sheets and ultimately easing its burden. These measures come at a crucial time when bad loans are expected to surge and support from ARCs will be very critical. Moin Ladha, Khaitan & Co. 

RBI expectedly kept the key rates unchanged and reiterated its accommodative stance on rates to achieve sustainable growth of the economy and its determination for control over inflation. This will continue to further foster the demand for housing. Housing markets have responded well in the past to lower home loan rates, stamp duty reduction and other rebates. 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. Ram Raheja – Director, S Raheja Realty

The second wave of infection may set back the growth momentum, but we expect that to be temporary. Given that medical faculties are much better prepared than they were in the first lockdown, the spikes are limited to a few pockets, death rates are low, and the vaccine drive is getting intense, the economic impact of this wave will be limited to a quarter or two. Growth in FY 2022 will be a story of two halves, with economic activity picking up rapidly in the second half as a significant population gets vaccinated and we effectively bend the infection curve Rumki Majumdar, Economist, Deloitte India

As expected, the RBI has kept the policy rates stable and will likely continue holding the rates steady as there are significant risks to inflation moving up. Intermittent supply-side disruptions and gradual demand revival will keep the pressure on prices. The RBI has pushed more liquidity to MFIs to encourage lending to rural and SME sectors. Credit growth has to take off rapidly to ensure sustainable capital expenditure and spending across all segments of the economy. Rumki Majumdar, Economist, Deloitte India

The RBI’s commitment to keeping policy accommodative is a result of the tempering of upside risks to both growth and inflation. We think the effects of the resurgence of COVID-19 cases are likely to be limited and unlikely to derail the gradual normalisation of policy. The RBI kept policy rates steady in its first monetary policy meeting of the 2021-22 financial year, as was widely expected. However, the governor said the bank would maintain “ample” liquidity and announced the purchase of INR1trn of bonds in the secondary market in a new program to limit the rise of long-end yields. Rahul Bajoria, Chief India Economist, Barclays

“The RBI maintained an accommodative stance that’s given the spike in inflation to nearly 5%. It is critical to watch how oil prices play out over the next few weeks. The high price of domestic fuel is one of the drivers of inflation while some of that inflationary pressure is being set off by the surplus food grain production it essentially then boils down to one wrong correcting another,” said Sanjay Kuma, CEO & MD Elior India.

The RBI measures after the MPC policy meet are welcome and positive reinforcement of RBI’s commitment to support growth and combat the COVID crisis. The policy announcement has an outright dovish pause with the commitment of an accommodative stance till growth recovery is secured. All 6 members voted for the unchanged policy rate and stance. Measures announced today are intended to lower borrowing costs, ease financial conditions and keep liquidity supportive for credit offtake. The announcement ebbed worries of any early liquidity withdrawal. Mihir Vora, Director & Chief Investment Officer, Max Life Insurance

Overall a reasonably good policy with the right caution on growth while highlighting inflationary risks. Further, the shift from time-based guidance to state-based one is more realistic given several uncertainties. The OMO calendar along with VRR across maturities points towards a flattening of the curve going ahead. Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank

The RBI MPC voted for a status quo in line with our and market expectations. The move to introduce G-SAP – secondary market GSec acquisition program is a masterstroke by the RBI. This would reign in sharp spike in GSec bond yields. The introduction of long term VRRR (variable rate reverse repo) is an extension towards normalising liquidity. Liquidity surplus however will and likely continue. We expect yield curve to flatten from the current levels with the longer end of the yield curve compressing faster than the short end. Lakshmi Iyer, CIO (Debt) & Head Products, Kotak Mutual Fund

The outcome of the MPC meet was on expected lines as far as repo rates and stance are concerned. However, the announcement of secondary market G-sec acquisition programme (G-SAP 1.0), where the RBI will commit upfront to a specific amount of open market purchases of government securities with a view to enable a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions, was a positive surprise. This shows the resolve of the RBI to keep Gsec rates under check despite the large borrowing program. The endeavour will be to ensure congenial financial conditions for the recovery to gain traction. The large amounts committed in Q1 and in April show the seriousness of the RBI in implementing the Gsec program. Dhiraj Relli, MD &CEO, HDFC Securities

Doubling the exposure that can be maintained with payment banks would enhance the role of payment banks. Recognising using the role of ARCs, a committee being set up to look at ARC reforms would be the much-awaited change in near times, especially with the noise around NPA and role of ARCs continuing to rise. Membership to RTGS and NEFT being extended to PPI issuers, white label ATM, etc. is a welcome change in the times where such players have a significant role. ECB framework allowed parking of proceeds only for 1 year. Extending this by one more year for borrowers who faced deployment issues in COVID times would ensure access to capital for such borrowers for some more time. Recognising and strengthening the growth of GSec, the RBI has taken a bold step of introducing a structured secondary market for GSecs. Veena Sivaramakrishnan, Partner, Shardul Amarchand Mangaldas & Co

The decision by RBI to maintain the repo rate status quo will make sure that the cost of borrowing will not harden soon. However, a further cut in the key rates would have given a boost to the current demand uptick for real estate. The low interest rates have started impacting the property markets in a positive way as maintaining low finance costs is critical for a sustainable recovery in the real estate sector and enhancing confidence in home buyers. A wave of spending by the government across sectors has also set the stage for years of high growth of the economy which will in-turn influence real estate too. While the government has taken some initiatives to uplift the sector in the past few months by introducing stress funds and stimulus packages, more reforms are required to propel the growth of real estate sector. Riaz Maniyar, Co-founder, YieldAsset Real Estate Tech Pvt Ltd

The RBI’s decisions reinforce the wait-and-watch policy with regards to policy rates as uncertainties remain on the growth outlook. The GSec acquisition program (GSAP) will provide a calendar for OMOs (through the secondary market) which markets have been demanding for some time. This should be positive for the bond market in the near term and push the yield curve to be flatter. Overall, the RBI remains growth supportive and steadfast in keeping yields under check. Suvodeep Rakshit, Vice President & Senior Economist at Kotak Institutional Equities

Given the surge in COVID19 cases and intermittent lockdowns across major cities, we thank the RBI for continuing with their accommodative stance. We further urge the RBI to take immediate action to arrest the deteriorating health of MSMEs caused due to the regular stop-start nature of business activities and increasing input costs which are having a catastrophic impact on the survival of these businesses. Pritam Chivukula – Co-Founder & Director, Tridhaatu Realty and Hon. Secretary, CREDAI-MCHI

The RBI maintained an accommodative stance that’s given the spike in inflation to nearly 5%. It is critical to watch how oil prices play out over the next few weeks. The high price of domestic fuel is one of the drivers of inflation while some of that inflationary pressure is being set off by the surplus food grain production it essentially then boils down to one wrong correcting another. This presents itself as a complex problem. While its good for the market, the oversupply of money could result in a sudden spike in inflation and a hike in interest rates making manufacturing exports uncompetitive. Indeed a tough road lies ahead. This is a rather bold step to continue maintaining the repo rate even though the inflation has touched a near peak over the last few quarters. Sanjay Kumar, CEO & MD, Elior India

Overall an extremely dovish and pragmatic policy focused on growth. MPC has stayed on course despite a tight ropewalk of balancing ‘the Incumbent Growth and inflation dynamics’, especially at a time when the spectre of surging Covid 19 cases and the resultant uncertainty had clouded the markets. MPC has reassuringly tried to assuage the markets by re-emphasizing its commitment to keeping policy accommodative with a shift to ‘state based guidance’ and maintaining ample liquidity. Niraj Kumar, Chief Investment Officer, Future Generali India Life Insurance Co. Ltd

The RBI governor continued to instill the markets with confidence and is cognizance of the uptick in yields and is taking various measures to contain the volatility. The measures to execute the TLRO effectively in order to flatten the yield curve was taken positively, also Liquidity support of Rs 50,000 crore to be provided to NABARD, NHB and SIDBI should promote priority sector lending. RBI is also indirectly expanding liquidity with increase in ‘ways and means advances’ for States and UTs by 46% to Rs.47,100 crores which is generally done to help them tide over temporary mismatches in the cash flow of their receipts and payments. All of these decisions will help in surplus liquidity in the monetary system and should support growth in the near term Raghvendra Nath, MD of Ladderup Wealth Management