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The Reserve Bank of India has prioritised growth while maintaining caution on concerns over the Omicron variant, bankers said. The announcements on liquidity management will also help without disrupting the market.
“The RBI has decided to continue with the accommodative stance as expected, with no change in repo and reverse repo rates. Despite Omicron threat and other risk factors evolving globally… there is no change in the growth and inflation projections of the RBI for the current fiscal despite changes in the macroeconomic scenario. That is indeed a positive sign,” said AK Goel, Chairman, Indian Banks’ Association.
State Bank of India Chairman Dinesh Khara said the RBI policy announcement addresses monetary policy and money separately, with the rate-setting divorced from calibrated liquidity management.
“The growth and inflation outlook look delicately poised even as the Omicron virus threat has put an element of uncertainty all around,” he further said.
Loan growth
Venkatraman Venkateswaran, Group President and CFO, Federal Bank, said the RBI might be waiting to see a loan growth pick-up before taking any action on rates.
“With the economic outlook clouded by Omicron and uncertainty on growth dynamics, the RBI has decided to continue the stance with an accommodative policy. The RBI has been consistent in the approach of prioritising growth over inflation for the last few quarters,” he said.
Zarin Daruwala, Cluster CEO, India and South Asia markets (Bangladesh, Nepal and Sri Lanka), Standard Chartered Bank, said the MPC’s pro-growth stance came out very clearly and this augurs well for the economy, which is recovering from the effects of the pandemic. “Low lending rates are likely to continue and should boost system credit growth. The gradual hike in term liquidity absorption through the biweekly reverse repo window will allow the system to ease towards higher rates, without risking market disruption,” she further said.
Experts expect a call on a rate hike in the February policy, based on the impact of the Omicron variant and growth outlook.
“Going forward, we expect the monetary policy normalisation process to get a leg-up in the February meeting and see the possibility of a reverse repo hike if the omicron virus is managed. We expect a change in stance in the April meeting from accommodative to neutral and a repo rate hike by June or August policy 2022,” said Abheek Barua, Chief Economist, HDFC Bank.
“While we had expected the RBI MPC to use today’s policy as an opportunity to prepare markets for an impending reverse repo hike in February 2022, restoring normalcy to the policy corridor, we found the policy relatively more dovish.
“We now see the RBI hiking the reverse repo rate in two steps, a 20 basis point hike in February and return to a symmetric policy corridor by March with a potential hike in an out-of-turn policy,” said a BofA Global Research report.
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