RBI Governor Shaktikanta Das said that second half of 2020-21 is expected to show some positive growth
Reserve Bank of India (RBI) Governor Shaktikanta Das-led Monetary Policy Committee on Friday, December 4, kept the key interest rates untouched amid inflation concerns. However, the central bank will ensure liquidity for the stressed sectors for keeping the nascent economy on track, said the RBI Governor in an online briefing. While revealing the fifth bi-monthly monetary policy review, Mr Das said that the economy is recovering faster than expected and that the growth rate is likely to turn positive in the second half of the current financial year. The economy contracted by 23.9 per cent in the first quarter and 7.5 per cent in the second quarter due to the impact of the COVID-19 crisis. (Also Read: Five Key Takeaways From RBI Governor Shaktikanta Das’s Policy Statement )
Here are some of the comments from economists on the RBI’s Monetary Policy Review:
Anagha Deodhar – Economist, ICICI Securities:
”Today’s monetary policy review was largely a non-event. In line with our expectation, the MPC kept rates unchanged and vowed to keep the stance accommodative at least during the current financial year and into the next financial year. It noted that inflation is likely to remain elevated despite some possible softening during winter months. Accordingly, it upped its inflation forecast to 6.8% in Q3 and 5.8% in Q4FY21. Given the expected inflation and growth trajectory, we believe the committee may stay put on rates through 2021.”
Rajni Thakur, Economist, RBL Bank:
“RBI MPC announcements were in line with expectations and almost mirror the ‘wait and watch’ approach that financial markets currently have about growth-inflation dynamics of the Indian economy. There are some initial signs of growth recovery but RBI acknowledged that there are many pockets of pain yet to recover. And hence growth took priority over inflationary overshoot. We thus expect rates to stay lower for longer, even though any rate action will likely not come through for next few months till inflation levels show any sign of cooling off.”
Abheek Barua, Chief Economist, HDFC Bank:
”The RBI kept its policy rate unchanged at 4 per cent, as expected, and continued to keep its policy stance accommodative. Some sections of the market had anticipated the central bank to act on the rising surplus liquidity in the system in light of the increasing inflationary pressures. However, the absence of any major liquidity absorption measures in the midst of a prolonged inflationary episode and indeed the upward revision of both the RBI’s growth and inflation forecasts might be somewhat puzzling.”
Aditi Nayar, Principal Economist, ICRA Ltd:
”A pause from the Monetary Policy Committee in its December 2020 policy review was the foregone conclusion, given the further hardening of inflation, and the shallower than expected contraction in GDP in Q2 FY2021. Regardless of the MPC’s conclusion that India has already exited from the recession that gripped it in H1 FY2021, a continued output gap resulted in the expected continuation of the accommodative stance. The additional layers of reform unveiled by the RBI, measures aimed at funneling liquidity toward credit, and the signals that liquidity will not be withdrawn hurriedly, will serve well to boost sentiment, and cap yields.”
Dr. Aurodeep Nandi, India Economist, Vice President, Nomura:
“The RBI resisted blinking despite the high inflation glare. There were two insecurities that the market had in the run-up the policy meeting – one, whether the higher-than-expected inflation and growth data would trigger a rethink on the existing ‘lower-for-longer’ guidance on policy rates; and two, whether the RBI would look to temper the surge in liquidity to re-align money market rates with the policy corridor. On both, the RBI has essentially doubled down on its October accommodative guidance and asserted that inflation remains largely supply side driven and that supporting growth remains its paramount priority. Our baseline projection is that the RBI will continue keeping policy rates on hold in the near future”.