The RBI Monetary Policy announcements made today is a “whatever it takes” moment for India and its policymakers. Several steps taken by the Monetary Policy Committee are truly path-breaking and shows the willingness of the Governor and the MPC to think laterally, writes B Prasanna, Head – Global Markets, Sales, Trading & Research, ICICI Bank.
Commenting on unchanged Repo rate, he says, “The crowning glory of all measures is the provision of long term money through LTRO at the repo rate that is intended towards facilitating better transmission in the bond and loan markets. Besides lowering rates in the short end of the sovereign curve it is also likely to lower Corporate Bond yields, deposit rates and lending rates. Additionally, leeway provided on CRR on incremental retail loans, extending the scope of external benchmark linked loans, extension of restructuring benefits for MSMEs and commercial real estate will all go a long way towards providing much-needed credit to these stressed sectors as well as help in aiding stressed projects.”
Even as the MPC retains its accommodative stance and admits to further room for cut(s), it is constrained currently on the policy rate front as inflation remains uncertain and elevated. The MPC has however displayed its clear intent that several instruments are available at its disposal to support growth, ensure adequate systemic liquidity, enable better transmission and channelize better credit flow. Going forward we expect the MPC to react to an evolving growth-inflation situation. While the base case is still for a pause, probability of one cut cannot be ruled out sometime in the second half of the calendar year when inflation is likely to fall towards 4 percent, adds Prasanna.
