RBI’s liquidity, growth-supporting measures crucial for recovery from 2nd COVID wave: Experts

PTI, Jun 4, 2021, 5:08 PM IST

Mumbai: The measures announced by RBI to maintain liquidity and support economic growth through lower interest rates will be crucial for recovery from the second wave of the COVID-19 pandemic, experts said on Friday.

The RBI in its monetary policy on Friday kept interest rates unchanged at record lows and committed to maintaining an accommodative policy stance to support growth.

It, however, slashed its growth projection for current fiscal year to 9.5 per cent from 10.5 per cent earlier. It pegged retail inflation at 5.1 per cent in 2021-22, with upside risks from higher commodity prices and re-emergence of higher supply constraints amidst the current phase of lockdowns.

ICRIER RBI Chair Professor in Macroeconomics Alok Sheel said as expected, the monetary policy committee (MPC) of RBI decided to keep policy rates on hold, while stating its intention to continue injecting more liquidity in financial markets, including buying government debt.

“With the continuing overhang of bad debt clogging the transmission channels of monetary policy, fiscal policy remains by far the most potent game in town for getting the economy back on track,” Sheel added.

Amit Goyal, CEO, India Sotheby’s International Realty said for the housing market, it is a big positive that the repo rate has been kept unchanged despite the fact that the retail inflation has remained elevated.

“From a home buyer point of view, this effectively means that the interest rates on loans will continue to remain at a historic low. We believe RBI’s goal to maintain the liquidity and support economic growth in the country through lower interest rates will be crucial for recovery from the second wave of the pandemic,” Goyal added.

Anarock Property Consultants Chairman Anuj Puri said had it not been for the pandemic, RBI would have definitely taken a different stance for the benchmark rates.

“It is certainly positive for home loan borrowers as the floating retail loan rates have been at the lowest level of the last two decades. The continuation of this low-interest rate regime works very well for all borrowers as the environment of high affordability is likely to continue for some more time,” Puri added.

Financial intelligence company Moody’s Analytics said with COVID-induced restrictions likely to be eased only gradually, the sharp slowdown in domestic demand is set to weaken revival beyond the June quarter.

” The RBI is expected to maintain an accommodative stance over the next two quarters despite transitory inflation pressures, while expanding liquidity measures to support recovery,” it added.

ICRA Chief Economist Aditi Nayar said MPC is firmly focussed on nurturing a durable revival in growth and ICRA anticipates that it will demonstrate a high tolerance for the average CPI inflation to range between 5-6 per cent during the recovery period.

“While the MPC’s real GDP growth projection of 9.5 per cent is in line with the upper end of our own forecast range of 8-9.5 per cent, we believe that accelerated vaccine availability, resulting in a back-ended surge in domestic demand, is central to this outcome.

“Such a resurgence in demand may however be inconsistent with an average CPI inflation of 5.1 per cent in FY2022, unless taxes on fuels undergo an appreciable reduction,” Nayar added.

Essar Capital Senior Managing Director Sanjay Palve said RBI’s move is likely to aid the fiscal efforts made by the government to boost economic revival.

Acuit Ratings & Research Chief Analytical Officer Suman Chowdhury said the Reserve Bank has taken note of the upside risks to inflation in a scenario of higher commodity prices and re-emergence of higher supply constraints amid lockdowns but continues to project benign inflationary figures for the next few quarters.

“In a way, this confirms our expectation that bringing back the growth impulses is the primary focus of monetary policy over the near to medium term,” he added.

HDFC Bank Chief Economist Abheek Barua said the RBI’ move to provide liquidity support for contact intensive sectors is likely to aid credit flow to these sectors.

“That said, a more equitable distribution of credit is likely to be contingent on whether the assessment of risks is in line with the markup over reverse repo provided by the RBI to banks. Therefore, some form of credit guarantees is perhaps required for de-risking the system,” Barua added.

Muthoot Finance MD George Alexander Muthoot said a separate liquidity window of Rs 15,000 crore for certain contact-intensive sectors and doubling exposure threshold to Rs 50 crore for MSMEs, small businesses and individuals for business loan purposes under Resolution Framework 2.0 will help borrowers in this COVID crisis.

J Sagar Associates Partner Anish Mashruwala said RBI has consciously considered the need to ensure equal distribution of credit and liquidity to the particularly affected sectors.

The measures are all welcome to support the overall growth of the Indian economy, he added.

Bandhan Bank’s chief economist Siddhartha Sanyal said RBI had been proactive in using both conventional and unconventional monetary policy tools during the past 15 months to buffer the economy from the effects of the pandemic.

“In today’s policy, the RBI’s bias to continue extending the same was evident from the initiatives such as liquidity support to contact-intensive sectors and MSMEs and small businesses,” Sanyal said.

N Sivaraman, MD & Group CEO, ICRA welcomed the provision of on-tap liquidity for contact intensive sectors, additional funds for SIDBI and the enhancement in the exposure levels for Resolution Framework 2.0.

Radhika Rao, Economist & Senior Vice President, DBS Singapore said the central bank’s priorities “went beyond the policy rate”.

Nilaya Varma, CEO, Primus Partners said, “Record forex reserves of nearly USD 600 billion is providing both RBI and to an extent the government as well to push growth. The need now is for the government to step in with a fiscal stimulus given limited room for private investments providing the required push.”