‘Pro-growth policy, liquidity management key focus’

The decision to leave the policy rates unchanged is on expected lines and the announcements by the Reserve Bank of India reflect support to growth and focus on maintaining liquidity, said bankers.

“RBI reposes confidence in the buoyancy in economic activities across the segments and thrust given in the Budget for higher capital expenditure leading to higher economic growth. One of the positive news in this context is both fiscal and monetary policies are in the same page of ‘pro-growth’, which is indeed the need of the hour,” said Rajkiran Rai, Chairman, Indian Banks’ Association and Managing Director and CEO, Union Bank of India.

Rai also highlighted that the Governor has reiterated the RBI’s resolve to maintain comfortable liquidity position in the market which they have successfully managed through out the challenging period of pandemic.

Liquidity management

State Bank of India Chairman Dinesh Khara said the RBI policy is an acknowledgement and continuation of doing whatever it takes to maintain an orderly, seamless and non-disruptive liquidity management policy to support debt management. “Towards this end, an extension of enhanced HTM limit, relaxation of funds availability under MSF, an extension of on tap TLTRO to NBFC, deduction of credit disbursed to ‘new MSME borrowers’ from their NDTL for calculation of the CRR will calibrate credit flow and liquidity management,” he said.

SS Mallikarjuna Rao, Managing Director and CEO also noted that the policy has complemented the Budget in supporting growth impulses. “The normalisation of CRR in a phased manner would smoothen the liquidity absorption process,” he said.

With inflation expected to be lower, bankers said they expect rates to be stable.

“Coming after a growth-oriented Budget, the monetary policy stance augurs well for economic growth. Expect rates to be stable with an upward bias depending on inflation trajectory,” said Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank.

Economists also said they expect yield management by the RBI to continue.

“The RBI is likely to continue with normalising liquidity conditions, in line with underlying growth and inflation fundamentals. However, they will make the process as non-disruptive as possible by continuing to keep liquidity in surplus. Yield management by the RBI is likely to continue; however it is likely to be more comfortable with a higher band for yields than 2020,” said Abheek Barua, Chief Economist, HDFC Bank.

“The central bank did its bit today by promising an accommodative liquidity stance to help the bond market absorb elevated government borrowing. The aim of the central bank, in our view, will be to ensure that financial conditions do not tighten too sharply over the foreseeable future,” said a note by HSBC Global Research.

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