Monetary Policy announcement - Feb 2021 - Views of Ms. Rajni Thakur, Economist, RBL Bank

"The key action points in MPC announcements this morning, in terms of stable policy rates, is that the continuance of accommodative stance and improved growth outlook, were all along the expected lines. The tricky bit was to convince the markets on financial stability as its core focus and yet phased return to normal liquidity levels in a post-Covid recovery year ahead. MPC has decided to restore the pre-Covid CRR levels between March and May this year and indicated a non-disruptive approach to normalise financial conditions in tune with growth and credit pick up. On the other hand, some of the Covid support measures like incentives for bank credit flows to MSMEs or on tap TLTROs to NBFCs, have been extended further.

While the budget announcements have put growth push squarely on fiscal side, MPC reiterated its own growth-oriented stance as well, in addition to orderly completion of the government's market borrowing programme in a non-disruptive manner. Clearly, monetary policy is developing in conjunction with fiscal policy at this time and will likely continue to do so till growth returns materially. All indications thus point towards a hold on any rate action for next two quarters at least, unless growth surprises on upside and constant re-tuning of liquidity measures to match growth and credit uptick. While RBI made all the right noises, markets remain worried about high supply pressures and risks to inflation trajectory from broad-based escalation in cost-push pressures."

Source : Equity Bulls

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