Maintaining adequate systemic liquidity and its distribution - RBI Monetary Policy - Acuité Ratings & Research

Mr.Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research

"On expected lines, MPC has unequivocally reaffirmed its accomodative stance and continued with the extended pause on rates in the June 2021 statement given the need to safeguard the nascent growth impulses in the face of strong headwinds from the second Covid wave. While taking cognizance of the impact of the stringent lockdowns announced in April-June, RBI remains fairly optimistic on the growth outlook for FY22 and has only downsized the GDP growth forecasts from 10.5% to 9.5%.

The central bank has taken note of the upside risks to inflation in a scenario of higher commodity prices and re-emergence of higher supply constraints amidst the current phase of lockdowns but continues to project benign inflationary figures for the next few quarters albeit at slightly higher levels of 10-20 bps as compared to the previous forecasts. In a way, this confirms our expectation that bringing back the growth impulses witnessed particularly in Q4FY21 is the primary focus of monetary policy over the near to medium term.

As part of its objective to ensure adequate liquidity, RBI has continued with its GSAP 1.0 programme for Q1FY22 with a scheduled Gsec purchase of Rs 40,000 Cr in June and importantly, taking it forward with GSAP 2.0 with the planned acquisition of another Rs 1.2 Lakh Cr in Q2FY22. Along with the use of other tools such as OMOs and Operation Twist, these announcements are a clear message to the market participants that RBI would like to provide necessary support and facilitate a slightly downward bias on the bond yields. One interesting development is the inclusion of SDLs in the GSAP scheme which will help to keep the costs of states' additional borrowings down.

Another priority for RBI in its own words is "not only maintaining adequate systemic liquidity but also ensuring its distribution". Accordingly, another on tap liquidity window of Rs. 15,000 Cr has been announced for banks to provide liquidity relief to the contact intensive sectors who continue to bear the brunt of the pandemic. Further, an additional Rs 16,000 Cr funding has been earmarked for SIDBI for lending to MSMEs, directly or indirectly over and above the quantum of Rs 50,000 Cr that was set aside for government financial institutions in the April policy. While the banks' appetite to take additional exposure to the stressed sectors remains to be seen, RBI has attempted to create an incentive structure for directing lending to them. In order to provide further relief to the businesses hit by Covid 2.0, the newly announced restructuring window has been extended for all entities with outstanding credit of Rs 50 Cr.

The decision to permit Regional Rural Banks (RRBs) to issue certificates of deposits (CDs) is also an important step in bringing these financial institutions in the mainstream.

Source : Equity Bulls

Keywords