With growth slowing and rise in inflationary pressures, RBI expectedly kept a status quo on the policy rates and maintained accommodative stance, signalling continuation of easy financial conditions. Downward revision in FY22 GDP growth projection to 9.5% was quite expected, but seems little optimistic when compared with consensus estimates. Nevertheless, RBI pursued its broad intent of plugging weak spots in the economy by providing on tap liquidity with additional lending to distressed and contact-sensitive sectors.
On inflation, the CPI projection of an average of 5.1% for FY22 looks credible as higher oil and commodity prices is leading to elevated price pressure. Though healthy monsoon and higher crop output may somewhat contain food inflation. Announcement of another round of G-SAP and devolvement of various bond auctions clearly convey RBI’s stance on interest rates and government borrowing costs.
On the repo rate, we have hit the floor, with further rate cut completely ruled out given the prevalent negative real interest rates. With the space for traditional monetary policy being constricted, we expect the RBI to continue to use its balance sheet to keep financial market conditions easy.
-By Mr. Amar Ambani, Senior President and Head of Research – Institutional Equities, YES SECURITIES.