Revivalist and Accommodative Policy
Dr. Joseph Thomas, Head of Research - Emkay Wealth Management on RBI unanimously voting to maintain the status quo on policy rates. As expected, it is status quo on rate, and the emphasis is more on continuing with the accommodative stance, and liquidity enhancement measures, and the restructuring of the stressed loan portfolios. The outlook for growth and inflation continues to be uncertain, and contraction in GDP growth is expected and inflationary pressures are expected to remain elevated in Q2 and it may moderate in Q3. RBI has clearly stated that there is further room for a rate cut, but the RBI will wait and watch for a “durable reduction”, in inflation for further rate action. This amounts to saying that only if there is sustained fall in inflation especially food prices RBI may consider further rate cuts. This does not rule out further rate cuts but makes it linked to inflation performance. The RBI policy has been effective in the desired direction in the last one year and especially so after the pandemic started. The transmission of the benefits of a rate cut has been possible only due to the efficient and easy liquidity management. The OMOs reduced the cost of funds across the board. Borrowing costs through CPs and CDs were at low single-digit levels after more than two decades. The NBFC space is better now due to the liquidity action. What was needed from the RBI this time around was a reaffirmation of the accommodative policy, which the RBI has done very explicitly. The liquidity management is also being done pro-actively which would help the short- term rates to remain stable to lower. The policy takes cognizance of the economic realities around growth and inflation and has adopted a pragmatic approach to the resolution of important issues.
Tags : Interviews NBFC RBI Accommodative Policy