Bankers and financial experts on Friday hailed RBI’s policy, saying the decision to keep the key repo rate unchanged is an accommodative approach to manage inflation while keeping growth as target, amid the current economic conditions.
The Monetary Policy Committee (MPC) evaluated domestic and global macroeconomic and financial conditions and voted unanimously to leave the repo rate unchanged at 4 per cent, RBI Governor Shaktikanta Das said in his policy statement for the bi-monthly monetary policy review.
It also decided to continue with the accommodative stance of monetary policy as long as necessary – at least during the current financial year and into the next year – to revive growth on a durable basis and mitigate the impact of COVID-19, while ensuring that inflation remains within the target going forward.
“Today’s policy statement by RBI is a perfect exposition of doing ‘whatever it takes’ to revive growth,” SBI chairman Dinesh Kumar Khara said in a statement.
Given the expectation of inflation to stay elevated and a GDP contraction of 9.5 per cent in 2020-21, RBI has done the right thing by announcing “discretion-based” policy responses rather than being “rule based”, he added.
Bank of India’s chief executive A K Das said the retail and small business segments will also have better prospects by measures, such as, rationalisation of risk weight for housing loans, enhancement of regulatory retail cap and co-lending with NBFCs/HFCs.
Punjab National Bank’s MD and CEO S S Mallikarjuna Rao welcomed the Rs 1 lakh crore targeted long term repo operations and said it will support the economic growth.
Friday’s monetary policy was as aggressively accommodative as possible without cutting the policy rate, said Abheek Barua, Chief Economist, HDFC Bank.
“Given the stance, there is a significant probability of a rate cut in February, if not in December itself as inflation, as we expect, moderates. Has the RBI gone overboard in its effort to support growth? We think not.
“These are unprecedent times and the Indian economy’s revival efforts are hobbled by the lack of adequate fiscal support. If monetary policy does have to do the heavy lifting, it cannot do it within the confines of a conventional take-no-risks framework,” Barua said.
Siddhartha Sanyal, Chief Economist and Head – Research, Bandhan Bank said :”Steps such as larger quantum of OMOs and OMOs in state government securities should offer cheer for the bond market, while on-tap TLTRO and rationalization of risk weightages of housing loans are meaningful steps in the right direction. We continue to expect discussion on rate cuts to be back on the table later during the year as inflation prints start softening.”
The Reserve Bank in its policy statement said it is ready to conduct market operations to assuage pressures arising out of it and dispel any illiquidity in financial markets.
“The monetary policy announcement is overall positive and growth oriented. The RBI Governor has rightly mentioned that focus must be on reviving the economy. Accordingly, the accommodative stance was as expected. The RBI’s assurance on maintaining comfortable liquidity conditions will assure the markets, at the same time enable the government to go ahead with its borrowing programme smoothly,” said Padmaja
Chunduru, MD & CEO, Indian Bank. The policy measures recognize the growth risk the economy faces and the imperativeness of providing liquidity for growth, said R K Gurumurthy, Head – Treasury, Lakshmi Vilas Bank.
“The decision to hold rates steady would also help to protect net interest margin (NIM) of banks as a majority of the loan book is linked to the repo or other floating benchmarks,” Gurumurthy said.