Industry Reaction on RBI’s MPC

"The introduction of a risk-based audit in large NBFCs and co-op banks is a much welcome move and will assuage investor’s concerns over the risks prevailing for the financial institutions. This would also strengthen the management of risk of contagion in India's financial sector,” said Dr. Arun Singh, Global Chief Economist, Dun & Bradstreet.

Industry Reaction on RBI’s MPC

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The Reserve Bank of India (RBI) on Friday retained its key short-term lending rates to subdue the persistently high inflation rate. The Monetary Policy Committee (MPC) of the central bank, however, maintained the growth-oriented accommodative stance, thus opening up possibilities for more future rate cuts.

The MPC voted to maintain the repo rate — or short-term lending rate for commercial banks, at 4 per cent. On this decision, here is some expert reaction on RBI’s latest Monetary Policy. 

On Liquidity support

“The RBI maintained status quo for the third time in a row as inflationary pressures continue to prevail, dampening the prospects for growth. India is one of the few countries in the world to be exhibiting the phenomenon of high inflation alongside a contraction in growth. It is not only the food prices that pose a concern, but non-food inflation is likely to be driven by surging healthcare costs, an uptick in demand and supply-side disruption, which will continue to pose upward pressures to inflation over the next few months. As long as core inflation remains sticky owing to cost-push pressures, the RBI is not likely to reduce the policy rates. Nonetheless, the RBI’s assurance to enhance liquidity support for financial markets and regulatory support to improve the flow of credit will keep interest rates low and improve bank credit flow. The introduction of a risk-based audit in large NBFCs and co-op banks is a much welcome move and will assuage investor’s concerns over the risks prevailing for the financial institutions. This would also strengthen the management of risk of contagion in India’s financial sector,” said Dr. Arun Singh, Global Chief Economist, Dun & Bradstreet.

On Economic Recovery

Mr Sameer Kaul, MD & CEO, TrustPlutus Wealth Managers (India) commented on the latest announcement by RBI Governor by saying, “The Monetary Policy Committee (MPC) has decided to leave the interest rates unchanged while maintaining an accommodative stance. According to the RBI Governor, economic activity has started to pick up post the lockdown caused due to the pandemic. Recovery in the rural economy is likely to be robust and aid the overall economic recovery. The MPC expects inflation to be at elevated levels in Q2FY21. The MPC is open to further monetary policy action but would like to use the dry powder judiciously keeping in mind the near term view on inflation. More than the policy rates, it is the additional measures announced by the RBI Governor that are a welcome move and shall aid economic recovery.  Some of these measures include permitting restructuring of MSME debt till 31st March 2021 and including lending to startups under Priority Sector Lending. The RBI has also increased the loan to value ratio of gold loans to 90%. While this move is positive from a credit standpoint it is negative from the point of view of the lender since it increases the risk of the lender not being able to auction the security and recover the money due to lower margin of safety.”

On Controling Inflation

Mayur Modi, Co-Founder, Moneyboxx Finance commented, “With inflation remaining above the RBI comfort level, policy rate cut was out of question. While the economic recovery has kick-started, it is the rural economy which is the brightest of all the segments and in this context it heartening to note that RBI has now allowed RRBs to access LAF window. The move will immensely benefit the rural economy, which in turn will also boost the broader economy.”

On Real Estate Growth Revival

Commented on the real estate market’s perspective, Parag Munot, Managing Director, Kalpataru Limited “RBI decision to keep policy rates un-changed is welcome and signals the government’s focus on fueling consumption. It is good news for homebuyers as home loan interest rates are expected to remain at current levels in the fiscal. Continuation of low rates, along with reduced stamp duty and various developer schemes will keep up the robust momentum. Importantly it will serve as the springboard for real estate growth in the next fiscal, as the economy recovers from pandemic’s impact

Anuj Puri, Chairman – ANAROCK Property Consultants commented, “As was expected, the RBI has kept the repo rate unchanged. The threat of inflation looms large – it currently hovers above 7% – and the apex bank is tasked with reining it in while simultaneously fostering the green shoots of resuming consumption. On the positive side, an unchanged repo rate will ensure that home loan interest rates will not harden anytime soon. It is quite clear that increasing interest rates would impact overall demand at a time when the government is keen to boost consumption.”

However, there is no denying that consumer inflation is at the upper end of the apex bank’s band, and the policy repo rate has already been substantially reduced by 140 basis points in 2020.

It goes without saying that the real estate industry’s perennial hope is fixed on lower interest rates. This would be enabled by reducing the repo rate – a least in theory, given that transmission of reduced repo rates to bank interest rates has been slow at best. With real estate demand gradually returning, especially in the wake of developers’ discounts and freebies and reduced stamp duty charges (in Maharashtra), reduced repo rates would have given an added boost to the ongoing festive season.

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