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The six-member Monetary Policy Committee (MPC) on Friday unanimously voted for keeping the policy repo rate unchanged as retail inflation has been above its upper tolerance level of 6 per cent for several months.
The Committee decided to continue with the accommodative stance as long as necessary – at least during the current financial year and into the next financial year – to revive growth on a durable basis and mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward.
To provide impetus towards reviving the economy, the Reserve Bank of India (RBI) announced specific additional measures to enhance liquidity support for financial markets; provide regulatory support to improve the flow of credit to specific sectors, among others.
Bankers, in their reaction to the bi-monthly monetary policy, said the status quo coupled with the continuation of the accommodative stance is a clear indication that revival of the economy from the unprecedented Covid-19 pandemic assumes the highest priority in the conduct of monetary policy.
Excerpts:
Rajkiran Rai G, Chairman, Indian Banks’ Association and MD & CEO, Union Bank of India
RBI’s accommodative stance and status quo on signal rates are on the expected lines. Policy signals are more tilted towards augmenting growth momentum in the economy. All the announcements in the policy are focused on ensuring liquidity, effective monetary transmission, availability of bank credit to such sectors which will have cascading positive effect on several other sectors, etc.
Dinesh Kumar Khara, Chairman, State Bank of India
Today’s policy statement by RBI is a perfect exposition of doing “whatever it takes” to revive growth. With growth projections at -9.5 percent and inflation set to be higher at least for now and the possibility of renewed infections in many countries, the monetary policy committee has rightly chosen to keep the policy stance accommodative and relied more on discretion based policy responses rather than being strictly rule-based. Accordingly, the decision to go down the open market operation route for State Development Loan borrowings, increasing the limit for the retail portfolio up to Rs. 7.5 crores and linking housing loan risk weights to LTV ratio are policy innovations that will please the markets and nudge the term structure of rates lower.
A. K. Das, MD & CEO, Bank of India
The policy is progressive and forward-looking with growth-centric initiatives. The measures are a potent force to support the bond market, catalyse rate transmission and improve liquidity so as to be conducive to the revival prospects. Core segments like retail and MSME will also have better prospects via measures, such as rationalisation of risk weight for housing loans, enhancement of regulatory retail cap and co-lending with NBFCs/HFCs.
A.S. Rajeev, MD & CEO, Bank of Maharashtra
The RBI’s MPC has deftly managed its policy decision given the uncertainty on the growth revival trajectory and rising inflation. On the regulatory front, significant steps have been announced to ensure liquidity in the financial markets with the introduction of ‘on-tap TLTRO’, modification in the risk weights for home loans, increase in exposure limits to individual retail and small business loans & extension of co-origination models to cover all NBFCs (including HFCs). All these measures will help to incentivise higher lending to retail and SME sectors, thereby giving further fillip to demand and credit growth in the economy.
Zarin Daruwala, CEO, India, Standard Chartered Bank
“The MPC’s decision to prioritise growth over inflation is a bold message to the market. Continuing the accommodative stance into next year is also a welcome move. The on tap Targeted long-term repo operation (TLTRO), Gsec and State development loan (SDL) OMOs and the extension of the period for the enhanced Held to maturity (HTM) limit will cap interest rates and ensure a resilient economic recovery. The real estate sector will get the much-needed boost through the rationalisation of risk weights on housing loans. India’s economic indicators have shown one of the sharpest improvements across the globe on account of the proactive measures announced by the RBI since March 2020.”
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