Expert views: RBI keeps key rates steady as expected

·5-min read
FILE PHOTO: Reserve Bank of India logo is seen at the gate of its office in New Delhi

(Reuters) - The Reserve Bank of India (RBI) kept key interest rates steady as widely expected on Friday amid persistently high inflation, and after a better-than-expected reading on economic growth.

The monetary policy committee also decided to retain an accommodative policy stance at least for the current financial year and into the next year to revive growth on a durable basis, Governor Shaktikanta Das said in an online briefing.

The key lending rate of the RBI or the repo rate was left unchanged at 4% while the reverse repo rate or the key borrowing rate stayed at 3.35%.

COMMENTARY

SAKSHI GUPTA, SENIOR ECONOMIST, HDFC BANK, GURUGRAM

"The central bank recognised that the inflation outlook has turned adverse and revised up its inflation estimate up by more than 100 bps to 6.8% in Q3 and 5.8% in Q4 FY21. That said, despite the rising inflationary pressures, the overall tone of the monetary policy continued to remain dovish as the governor reiterated the 'whatever it takes' stance to support growth.

"The MPC was much more optimistic on the growth front, revising its GDP growth estimate to -7.5% for FY21 from -9.5% earlier. We do not expect the RBI to cut rates any further and expect a prolonged pause throughout next year. We expect inflation to average close to 6% in Q4 and 5.6% in Q1 FY22."

PRITHVIRAJ SRINIVAS, CHIEF ECONOMIST, AXIS CAPITAL, MUMBAI

"The MPC has unanimously voted to keep markets calm given the uncertain outlook. However, the governor noted in his statement that there is a small window to proactively manage supply-side disruptions and break inflation spiral which is fuelled by excessive margins and indirect taxes."

"Underneath the calm disposition of the governor's statement is an urgent plea to the government to rein in inflation pressures."

KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU

"While the decision was on expected lines, the RBI came up with a more optimistic outlook for the economy for the current financial year, hinting at demand recovery, swayed as it was by the better-than-expected 3Q20 GDP data."

"The markets gleefully accepted the decision and moved up sharply following the central bank's hint of improved performance."

"That said, we believe that the expectation of relatively faster recovery appears premature, what with the high frequency data already signalling demand fatigue setting in (in line with our expectation) post the festival period and as worries about the second wave of infection continues to mount."

"We have retained our full-year growth expectation of a contraction of 8.6% yoy, even as the central bank expectation moved from being more bearish earlier to more bullish now."

SIDDHARTHA SANYAL, CHIEF ECONOMIST AND HEAD OF RESEARCH, BANDHAN BANK, KOLKATA

"The highlight of the policy is a clear reassurance of the accommodative stance for the foreseeable future, despite the central bank significantly revising up its CPI forecast trajectory.

"Thus, the policy underscores the priority of supporting growth over near-term inflation concerns. While there is little room for policy rates to move in the current situation, this MPC meeting de facto reaffirmed the continuation of liquidity support from the central bank.

"The RBI has lowered its forecast of growth contraction. Still, growth momentum is markedly weak and needs continued policy support."

LAKSHMI IYER, CHIEF INVESTMENT OFFICER (DEBT), KOTAK MAHINDRA AMC, MUMBAI

"The RBI has maintained status quo on rates in line with expectations. It continues to maintain its accommodative stance well into the next financial year as well. We view this move as a positive step towards anchoring bond yields and expect yields to ease from current levels.

While inflation guidance has been increased, there seems to be no urgency to withdraw liquidity prematurely as growth considerations remain equally strong."

JOSEPH THOMAS, HEAD OF RESEARCH - EMKAY WEALTH MANAGEMENT, MUMBAI

"The RBI policy reflects the determination of the central bank to continue with the accommodative policy, with the base rate unchanged at 4%, while being cautious about the inflationary pressures that are building up.

"But growth gets the priority once again, with inflation projected to be lower in Q4 and H1 FY22. That all the liquidity measures initiated earlier will continue to be in force is a consolation, especially in a high inflation scenario.

"The features and contents of the policy give the reassurance that lower rates and the plenty in liquidity will continue for a longer time, until inflation rises so much as to derail it. The policy is supportive of both equity and fixed income markets, with its moderating implications for rates."

GARIMA KAPOOR, ECONOMIST - INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI

"The RBI sought to assure financial markets about its continued support to growth through unconventional liquidity measures to prevent any derailment of the momentum, even as elevated inflation capped its wings with respect to rate cuts. The upward revision to growth for FY21 at -7.5% is in sync with our own expectation of -7%.

"We believe that improving signs of growth normalisation and elevated inflation in the near term suggest no additional scope for rate cuts. We expect the repo rate to remain unchanged at least through the first half of CY21."

RADHIKA RAO, ECONOMIST, DBS BANK, SINGAPORE

"Inflation and growth projections were dialled up - to capture the evolving firm inflation trajectory, CPI inflation was revised ~1.5% higher, besides a 2% upgrade in growth forecasts, expecting the headline to turn positive from the December quarter.

"These forecasts cement our expectations that the central bank MPC would prefer to settle into a long pause on rates, with a clear intention to anchor policy expectations.

"Bond market support would be maintained through open market operations as well as liquidity-neutral operation twists. Concurrently, to scale back additional liquidity boost from persistent FX intervention, we suspect the central bank might incrementally ease its bearish grip on the rupee in the coming weeks."

ASHISH SHANKER, DEPUTY MD AND HEAD OF INVESTMENT, MOTILAL OSWAL PRIVATE WEALTH MANAGEMENT, MUMBAI

"The RBI policy was on expected lines. They have prioritised growth over inflation. This is an acknowledgment that inflation drivers seem to be more supply-side led.

"An accommodative liquidity stance will ensure access to liquidity will not be a challenge and the ongoing recovery continues to gather steam. This will help push through government borrowings in a year when revenues are under pressure.

"Guidance is better than earlier on growth and flows."

(Reporting by Nivedita Bhattacharjee, Sachin Ravikumar, Chris Thomas and Anuron Kumar Mitra in Bengaluru and Abhirup Roy in Mumbai; Editing by Subhranshu Sahu)