Views on RBI Monetary Policy - Oct 2021

Churchil Bhatt, EVP Debt Investments, Kotak Mahindra Life Insurance Company Limited

"The MPC decided to persist with its accommodative policy stance and opted for a "resolute pause" in Policy Rates to provide support to "durable growth" with a firm footing. While the MPC retained its FY2022 GDP growth forecast at 9.5%, it revised its FY2022 projection lower by 40 bps to 5.3% on the back of lower food inflation. The MPC acknowledged that crude oil and other commodity prices remain a threat to the inflation trajectory, but weak demand should limit the pass-through to output prices. Importantly, on the action front, the RBI signaled the beginning of gradual "Tapering" of liquidity by extending VRR auction tenor, a measure widely expected by markets. While the RBI has refrained from committing any GSAP amount to support bond yields, their emphasis on an "orderly evolution of yield curve" should provide comfort to Bond Markets. We expect 10Y Gsec to trade in 6.20%-6.40% range in the near term."

Mr. Rahul Sharma, Co-Founder, Equity99 on RBI's Policy Announcement

RBI governor has kept the repo rate unchanged at 4% and the reverse repo rate continues to be 3.35%. Also, Governor said the policy stance continues to remain "accommodative" against expectations. MPC has revised FY22 CPI inflation to 5.3% from 5.7%. and has retained an FY21 GDP growth forecast of 9.95%. Governor Das said that the need for undertaking further G-SAP operations does not arise, which will reduce liquidity.

We expect the policy will be benefited for market and Banks will show good performance also NBFC stocks will perform as RBI has been decided to introduce the Internal Ombudsman Scheme to further strengthening the internal grievance redress mechanism of NBFCs.

Dr. Samantak Das, Chief Economist and Head Research & REIS, India, JLL

Policy rate - status quo stance to support growth

"Sustained policy support and the progress of vaccination are important tools for restoring normalcy and recouping the economic growth lost during the pandemic period. The central bank's decision to keep the policy rates unchanged is expected to act as key policy support to nurture the sustained growth of the economy. The confidence in the recovery of the economy is reflected in RBI maintaining the GDP growth forecast at 9.5% for the financial year 2021-22. The upward revision of the sovereign rating by Moody's to "Stable" from "Negative" also supports the view that downside risks are receding.

The real estate sector has acted as a forward-looking indicator of economic recovery if one were to look at the operational metrics of key asset classes. Commercial office space witnessed 8% YOY growth in net absorption at 5.85 mn sq. ft in Q3 2021, while residential sales grew by 65% on sequential quarter basis registering sales of more than 32,000 units in the top seven cities in India. The reduction in mortgage rates by various banks is expected to provide further boost to housing sales with the onset of festive season and improved visibility on economic growth. The growth in credit cycle is expected to benefit overall real estate sector which will also have ripple effect on other sectors."

RBI Monetary Policy by Mr. Anand Nevatia, Fund Manager - TRUST Mutual Fund

A 5-1 vote on stance clearly reflects that majority of MPC still comfortable and convinced with an accommodative stance. A "favourable than anticipated" inflation trajectory and downward revision of CPI at 5.30% has allayed any fears of near term rate hikes. The Governor has assured the markets of ample liquidity while announcing higher VRRRs to absorb the excessive systemic liquidity. Absence of GSAP has impacted markets negatively specially at the longer end of the curve. The CPI readings will be low for the next couple of months. Inflationary expectations could lead to underperformance of longer maturity bonds. Easy liquidity will support performance of funds up to maturity of 3 years."

Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank:

"Expectedly the RBI maintained status quo, attempting to maintain a fine balance between the risks to GDP and inflation. However, we believe that the increasing risks to inflation especially as the economic activity is picking up pace has prompted the MPC into taking liquidity normalisation measures ahead of our expectations. We expect additional liquidity normalisation measures like overnight VRRR, increased quantum of higher tenure VRRR in the months ahead before expecting a reverse repo rate hike in December."

Nilesh Shah, Group President & MD, Kotak Mahindra Asset Management Company

"RBI policy is a " Mai Ho Naa" policy aimed to achieve multiple objectives. Keep Growth Supported, Inflationary expectations under check, Financial Markets stable, Liquidity adequate and appropriate, Yield Curve in shape and ensure smooth passage of Govt s borrowing Program. They have reassured the markets that monetarily policy normalization will be gradual and calibrated."

Mr. Deepak Jasani, Head of Retail Research, HDFC Securities.

"The MPC meet outcome on Oct 08 was largely on expected lines, though sounding a bit dovish. The RBI seems to be following the other central banks by first trying to reduce liquidity (by abandoning GSAPs and announcing VRRR calendar). It also cut inflation projection for FY22 by more than the street expectations to 5.3%. Though it has not hinted at hike in rates, reverse repo rates could be hiked in December meet, signaling the start of policy normalization. The equity markets are relieved temporarily by the dovish tone but will be aware of the rate hike possibilities going ahead."

Source : Equity Bulls

Keywords

Economy RBIPolicyUpdate Oct2021