RBI has estimated that the GDP of India will grow at 10.5% in financial year 2021-22 largely due to improvement in lending activities.
In its monetary policy committee report, RBI said, “The flow of financial resources to the commercial sector has been improving, particularly in respect of non-food bank credit and via commercial paper (CPs), credit by housing finance companies, private placement of corporate bonds and foreign direct investment. The total flow of these resources is Rs.8.85 lakh crore this year so far (up to January 15, 2021), compared with Rs.7.97 lakh crore during the corresponding period of last year. The latest bank lending survey of the RBI suggests further sequential improvement in sentiment on loan demand across all sectors right up to Q2:2021-22. Taking these factors into consideration, real GDP growth is projected at 10.5% in 2021-22 – in the range of 26.2 to 8.3% in the first half of the year and 6% in Jul-Sep.”
Meanwhile, RBI has kept the repo rate unchanged at 4% while continuing monetary policy stance to accommodative.
In justification of maintaining an accommodative stance, the central bank said that it is required to revive growth and mitigate the impact of covid-19 on the economy.
The monetary policy committee has maintained the status quo for the last three meetings after cutting interest rates by 115 basis points last year.
The reverse repo rate also remains unchanged at 3.35%.
Murthy Nagarajan, Head-Fixed Income, Tata MF said, “ RBI governor has stated the cash reserve ratio hike would allow them to do more measures to see to it that the borrowing programme goes of smoothly. This may create a tussle between the bond markets traders and RBI , if RBI does not do convincing measures, traders would take the yield higher.”
Rajeev Radhakrishnan, CIO-Fixed Income, SBI MF says lack of specific market intervention measures to ensure smooth absorption of the enhanced market borrowings remains the key disappointment from the fixed income market perspective. “Providing retail investors a direct avenue to invest in government securities is a welcome announcement from a longer term perspective,” said Rajeev.
Lakshmi Iyer, CIO – Debt & Head – Products, Kotak Mahindra MF said, “Providing retail investors a direct option to invest in government securities is a good development from a long term perspective. Yields to trade range bound from here on and OMOs to determine support for g-sec yields.”
Avnish Jain, Head of Fixed Income, Canara Robeco MF said, “Cash reserve ratio will be restored to 4% in 2 phases, indicating RBI’s intention of removing excess liquidity whilst maintaining sufficient surplus liquidity. This may push shorter terms rates higher. RBI is likely to support borrowings through maintaining surplus liquidity whilst keeping repo rate on hold. In the short term 10Y G-sec may trade in a range of 6-6.25%,” said Avinish.
Amandeep Chopra, Head - Fixed Income, UTI MF expects the 10 year yields to consolidate in a band higher than that during the Oct 20 - Jan 21 period and remain range-bound while looking for clues from the specific RBI actions around the G-Sec auctions.”
Niraj Kumar, CIO, Future Generali India Life Insurance said, “MPC has delivered a ‘complementary and a balanced policy’ in the backdrop of an expansionary fiscal budget. It has given ‘reassurance’ to the markets that it stands ready to support the government’s increased borrowing programme and growth recovery efforts, by staying accommodative and ensuring ample liquidity. The provision of direct access to retail Investors to invest in gsec is indeed a welcome move and a structural long-term reform towards retail participation in gsec markets. Overall, the MPC has struck a fine balance between inflation and growth and has chosen to play a complementary role to the government in its efforts to facilitate sustainable long-term growth in India.”
