Views on RBI Policy - Mr. Dhiraj Relli, MD & CEO, HDFC Securities

The outcome of MPC meet on Oct 09 was largely in line with expectations. Rates have been kept unchanged and stance remains accommodative. Announcement of OMO (including OMO for SDL) and on tap LTRO will aid pushing more liquidity into the system and keeping interest rates in check. Announcement to allow banks to increase exposure to retail and small borrowers up to Rs 7.5 crore and rationalising risk weights for all new housing loans till March 31, 2022 are welcome from the borrower's perspective but Banks need to beef up their credit appraisal processes.

Extension of the dispensation of the enhanced HTM limit of 22 percent up to March 31, 2022 for securities acquired between September 1, 2020 and March 31, 2021 and hint by the RBI that yields in the government securities (g-sec) market, both primary and secondary segments, also need to evolve in alignment with the comfortable liquidity conditions will help keep a lid on the Gsec yields.

MPC expects inflation to ease gradually towards its target over Q3 and Q4 as supply disruptions and associated margins/mark-ups driving up inflation would abate. RBI finally gave GDP forecast and expects a contraction at 9.5% for FY21 with downside risks.

As the economy continues to be in a fragile state, recovery in growth assumes primacy. The RBI's intent to support the economy even in the wake of rising inflation is comforting.

Source : Equity Bulls

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