Tag: MPC

RBI’s MPC begins deliberations amidst hopes of status quo in policy rate

Banking & Finance

[ad_1]

Read More/Less


The Reserve Bank of India’s rate-setting panel, Monetary Policy Committee (MPC), began its three-day deliberations on Wednesday amid expectations of status quo on the benchmark rate, mainly on account of uncertainty over the impact of the second wave of the Covid-19 pandemic.

Moreover, fears of firming inflation may also refrain the MPC from tinkering with the interest rate. . The outcome of the bi-monthly monetary policy meeting will be announced on Friday.

Also read: How the RBI managed a large surplus transfer to the Centre in a difficult year

The RBI had kept key interest rates unchanged at the last MPC meeting held in April. The key lending rate, the repo rate, was kept at 4 per cent and the reverse repo rate or the central bank’s borrowing rate at 3.35 per cent.

M Govinda Rao, Chief Economic Advisor, Brickwork Ratings, said the better-than-expected GDP numbers provide the much-needed comfort to the MPC on the growth outlook.

However, with the imposition of partial lockdown-like restrictions to contain the virus spread in several parts of the country, the downside risk on growth recovery has intensified, he said.

“Hence, the RBI is likely to continue with its accommodative monetary policy stance. Considering the risk of inflation emanating from the rising commodity prices and input costs, Brickwork Ratings expects the RBI MPC to adopt a cautious approach and hold the repo rate at 4 per cent,” he noted.

Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and PropTiger.com believes the RBI can maintain its accommodative stance in light of the economic impact of the second wave of Covid-19, without endangering its key goal of keeping inflation under control.

Reviving growth has become an important objective due to the economic damage caused by the recent lockdowns, he said, and added the RBI should also consider providing more liquidity to the National Housing Bank to enable the stability of housing finance companies, which in turn will allow the real estate sector to expand.

Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank was of the view that in the current environment, the choices before the Monetary Policy Committee may be limited.

“With the second phase of the pandemic impacting consumption and growth, the MPC will likely maintain status quo on policy rates, continue with an accommodative policy stance and ensure adequate liquidity in the system – all in an effort to stimulate growth. While it will keep one eye on inflation levels on the back of rising global commodity prices, it currently will focus on supporting economic growth,” Ekambaram said.

According to Sandeep Bagla, CEO of TRUST AMC, “It is expected to be a no change policy, with continued economy friendly soft interest rate bias.”

The RBI annual report released last week has already made it clear that “the conduct of monetary policy in 2021-22 would be guided by evolving macroeconomic conditions, with a bias to remain supportive of growth till it gains traction on a durable basis while ensuring inflation remains within the target.” The Reserve Bank, the report added, would ensure that system-level liquidity remains comfortable during 2021-22 in alignment with the stance of monetary policy, and monetary transmission continues unimpeded while maintaining financial stability.

In the assessment of the RBI, the evolving CPI inflation trajectory is likely to be subjected to both upside and downside pressures. The food inflation path will critically depend on the temporal and spatial progress of the south-west monsoon in 2021.

The government has retained the inflation target at 4 per cent with the lower and the upper tolerance band of 2 per cent and 6 per cent, respectively, for the next five years (April 2021 – March 2026).

Also read: ‘RBI may keep repo rate unchanged’

Retail inflation, based on Consumer Price Index (CPI), slipped to a three-month low of 4.29 per cent in April mainly on account of easing of prices of kitchen items like vegetables and cereals. The RBI mainly factors in the CPI while arriving at its monetary policy.

As per the RBI annual report, supply-demand imbalances may continue to exert pressure on food items like pulses and edible oils, while prices of cereals may soften with bumper foodgrains production in 2020-21.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , , , , , , ,

‘RBI may keep repo rate unchanged’

Banking & Finance

[ad_1]

Read More/Less


The rate-setting monetary policy committee (MPC) is likely to stand pat on the repo rate, in view of sticky inflation and dimming growth prospects amid the second wave of the pandemic.

The six-member MPC has held the repo rate rock-steady at 4 per cent since May 2020.

Retail inflation

Though retail inflation eased to 4.29 per cent in April from 5.52 per cent in March, the surge in wholesale inflation to 10.5 per cent in April from 7.39 per cent in March is expected to engage the committee members’ attention as it could spill over to the retail side.

The MPC will have to walk a tight rope; on the one hand it wants to rein-in inflation, on the other, it wants to support growth. Hence, MPC members may vote to keep the repo rate unchanged as well as continue with the accommodative policy stance.

“In the upcoming June 4 policy meeting, the RBI may want to sit tight in view of the high pandemic cases.

“We think the one change it might make is a markdown in the FY22 GDP growth forecast,” said Pranjul Bhandari, Chief Economist, India, HSBC Securities and Capital Markets (India) Private Ltd; Aayushi Chaudhary, economist; and Priya Mehrishi, associate, in a report.

Surplus liquidity

They observed that starting in Q4 (October-December) 2021, when the proportion of population vaccinated reaches critical mass, the RBI may start lowering surplus liquidity, raising the reverse repo rate, and change its stance to neutral.

“Having said that, an increase in the 4 per cent benchmark repo rate can wait for longer in our view,” said the economists.

The policy repo rate was last reduced from 4.40 per cent to 4.0 per cent on May 22, 2020.

“We believe that the Monetary Policy Committee has no option but to stay accommodative, even as it monitors incipient price pressures and keep all rates on hold, while likely extending its Government Securities Acquisition Program (GSAP),” said Rahul Bajoria, Chief India Economist, Barclays Securities (India) Pvt Ltd, and Shreya Sodhani, Research Analyst, Barclays Investment Bank, Singapore, in a note.

They emphasised that since May’s policy announcements, the growth outlook has degraded further, with greater evidence that inflation headwinds may remain persistent going into H2 (July-December) 2021.

However, with some relief on the virus caseloads, the RBI can balance its message around prospects for a return to economic normality.

In its Annual Report, the RBI observed that looking ahead, the evolving retail/ CPI inflation trajectory is likely to be subjected to both upside and downside pressures. The food inflation path will critically depend on the temporal and spatial progress of the south-west monsoon in 2021.

“Second, some respite from the incidence of domestic taxes on petroleum products through coordinated action by the Centre and States could provide relief, although international crude oil prices continued to be volatile.

“Third, a combination of high international commodity prices and logistic costs may push up input price pressures across manufacturing and services,” said the report.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , ,

RBI launches latest round of surveys to get inputs for monetary policy, BFSI News, ET BFSI

Banking & Finance

[ad_1]

Read More/Less


The Reserve Bank on Wednesday announced the launch of the latest round of households’ surveys to capture inflation expectations and consumer confidence, which provides useful inputs for its monetary policy.

The central bank has been regularly conducting these surveys.

Announcing the launch of the May 2021 round of Inflation Expectations Survey of Households (IESH), the RBI said it aims at capturing subjective assessments on price movements and inflation of approximately 6,000 households, based on their individual consumption baskets, across 18 cities.

“The survey seeks qualitative responses from households on price changes (general prices as well as prices of specific product groups) in the three months ahead as well as in the one year ahead period and quantitative responses on current, three months ahead and one year ahead inflation rates,” it said.

The cities include Ahmedabad, Bengaluru, Bhopal, Bhubaneswar, Chandigarh, Delhi, and Guwahati.

The May 2021 round of Consumer Confidence Survey (CCS) will cover approximately 5,400 respondents across 13 cities, including Ahmedabad, Bengaluru, Bhopal, Chennai, Kolkata, Lucknow, Mumbai and Thiruvananthapuram.

The CCS seeks qualitative responses from households, regarding their sentiments on general economic situation, employment scenario, price level, households’ income and spending.

The agency engaged by the RBI will conduct the surveys over telephone (instead of regular personal interview mode) in view of the COVID-19 pandemic.

The next meeting of the rate-setting Monetary Policy Committee (MPC) is scheduled during June 2 to 4, 2021.



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , ,

RBI’s MPC starts deliberating on next monetary policy

Banking & Finance

[ad_1]

Read More/Less


Reserve Bank of India Governor Shaktikanta Das-headed rate-setting panel MPC started its three-day deliberations on the next monetary policy on Monday amid a sudden surge in Covid-19 cases and the government’s recent mandate asking the central bank to keep retail inflation around 4 per cent.

The RBI will announce the resolution of the Monetary Policy Committee (MPC) on April 7.

Also read: RBI seen leaving repo rate unchanged in first review of FY22

Experts are of the view that the RBI will maintain status quo on policy rates at its first bi-monthly monetary policy review for the current fiscal. It is also likely to maintain an accommodative policy stance.

The policy repo rate or the short-term lending rate is currently at 4 per cent, and the reverse repo rate is 3.35 per cent.

Last month, the government had asked the RBI to maintain retail inflation at 4 per cent with a margin of 2 per cent on either side for another five-year period ending March 2026.

Also read: Govt’s borrowing plan to mount pressure on G-Sec yields in H1

M Govinda Rao, Chief Economic Advisor, Brickwork Ratings (BWR), said given the rise in the spread of coronavirus infections and the imposition of fresh restrictions to contain the virus spread in the major parts of the country, RBI is likely to continue with its accommodative monetary policy stance in the upcoming MPC meeting.

“Considering the elevated inflation levels, BWR expects the RBI MPC to adopt a cautious approach and hold the repo rate at 4 per cent,” Rao said.

Rao noted that in the last MPC, RBI initiated measures towards the rationalisation of excess liquidity from the system by announcing a phased hike in the cash reserve ratio (CRR) for restoration to 4 per cent.

“In the current scenario, the RBI may like to drain in excess liquidity, while higher borrowings and the frontloading of 60 per cent borrowings in H1 FY21 may put pressure on yields, and hence, the RBI may go slow in reversing its liquidity measures announced as a Covid-19 stimulus since March 2020,” Rao added.

Meanwhile, G Murlidhar, MD and CEO, Kotak Mahindra Life Insurance Company, said 2021 has seen a rise in yields across the globe in line with the vaccination-led optimism.

“However, the case for India is a little different this time, with a rapid rise in new Covid-19 cases over the last few weeks. In the upcoming policy, MPC may continue to emphasise the importance of ‘orderly evolution of the yield curve’ given benign inflation trajectory and second wave headwinds to nascent growth recovery,” said Murlidhar.

In a bid to control the price rise, the government in 2016 had given a mandate to RBI to keep retail inflation at 4 per cent, with a margin of 2 per cent on either side, for a five-year period ending March 31, 2021.

The central bank mainly factors in the retail inflation based on Consumer Price Index while arriving at its monetary policy. On February 5, after the last MPC meet, the central bank had kept the key interest rate (repo) unchanged citing inflationary concerns.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , , , , , , ,

MPC meet dates announced – The Hindu BusinessLine

Banking & Finance

[ad_1]

Read More/Less


The Reserve Bank of India (RBI) on Wednesday announced the bi-monthly meeting schedule of the six-member rate-setting monetary policy committee (MPC) for FY2022.

Also read: Jarring signals on economy as inflation is rising, factory output shrinking

Unlike last year, when the first MPC meeting (originally scheduled for March 31, April 1 and 3, 2020) was advanced to March 24, 26 and 27, 2020, and the Governor issued a statement on April 17, 2020 in view of the Covid-19 pandemic, the meeting schedule for FY2022 is spread out evenly.

According to RBI, MPC’s first meeting is scheduled from April 5 to 7, 2021. The subsequent meetings will be held from June 2 to 4, August 4 to 6, October 6 to 8, December 6 to 8, and February 7 to 9, 2022.

Last year, the repo rate (the interest rate at which banks borrow funds from RBI to overcome short-term liquidity mismatches) was cumulatively cut by 115 basis points in two tranches (to 4.40 per cent from 5.15 per cent on March 27, 2020 and to 4 per cent from 4.40 per cent on May 22, 2020), with the accommodative policy stance continuing throughout.

The reverse repo rate (the interest rate banks earn for parking surplus liquidity with RBI) was also cumulatively cut by 65 basis points in two tranches (to 3.75 per cent from 4 per cent on April 17, 2020 and to 3.35 per cent from 3.75 per cent on May 22, 2020).

According to a Barclays report, RBI may maintain its monetary accommodation for a while longer in order to enable the recovery to become entrenched.

Also read: Ten questions for the MPC to consider

The report, ‘Monetary policy: Talking the walk’, observed that recovering output lost to the pandemic could take longer than anticipated, and policy makers will be best served by letting the economy run ‘hot’ for a few quarters.

“The RBI will also need to balance nurturing the recovery and financial stability risks.

“Estimates show that the output gap will be negative well into 2022, and we believe monetary accommodation will be required to support growth recovery,” Rahul Bajoria, Chief India Economist, Barclays Securities (India) Pvt Ltd, and Shreya Sodhani, Research Analyst, Barclays Investment Bank, Singapore.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , , , , ,

Will RBI’s MPC take the Budget 2021 route?, BFSI News, ET BFSI

Banking & Finance

[ad_1]

Read More/Less


The Reserve Bank of India’s Monetary Policy Committee (MPC) began its meeting on Wednesday, and it is expected that the committee would maintain the interest rates and continue with an accommodative policy stance to push the growth.

Meanwhile, the Budget has revised the fiscal deficit to 9.5% for FY21 and 6.8% for FY22, indicating that the government’s borrowings would be high and in such a scenario it would be difficult for the RBI to maintain low interest rates — to encourage banks to lend more.

Jyoti Prakash Gadia, Managing Director, Resurgent India, said, “We expect a status quo to be maintained by RBI, in policy rates, with a pause for the 1st quarter of the next fiscal… A shift from the accommodative stance may not emerge in the short run, as the position gets cleared on the inflation and interest rate benchmarks. The continued tilt in favour of growth, in the growth – inflation tradeoff is need of the hour and basic expectation.”

Since the last three meetings, the MPC has kept the rate unchanged at a record low of 4%, and the reverse repo rate is 3.35%.

Aditi Nayar, principal economist, Icra, said that despite a drop in inflation in December 2020, the trajectory remains unpalatable. “We expect an extended pause for the repo rate, with the stance to be changed to neutral in the August 2021 policy review or later, once there is clarity on the durability of the economic recovery,” she said.

Inflation is now back within the MPC’s target band, despite concerns over rising input costs, and the economy appears well poised for a growth recovery, believes Rahul Bajoria, Chief India Economist, Barclays.

“While the MPC will likely draw comfort from the favourable developments on growth and inflation, it will wait to gauge the sustainability before signalling a change in approach. Liquidity guidance may take precedence over policy guidance in the interim,” he added.

Meanwhile, the price pressures have also been softening and with retail inflation posting successive downward surprises for November and December, the MPC may draw some comfort from this situation. Against the central bank’s estimate of 6.8% in Q4 2020 inflation averaged around 6.4% YoY. In addition, the price decline in vegetables has continued in January, which may drive CPI inflation closer to 4% YoY.

Softening of CPI inflation also reflects easing of supply side constraints that affected food inflation.

Experts believe the MPC may ensure availability of adequate liquidity to stimulate investments in the infrastructure sector after the Finance Minister Nirmala Sitharaman, in her Budget 2021 speech, announced that the government would set up a dedicated infrastructure financing body.

The Gross Domestic Product (GDP) is projected to contract by 7.7% per cent in the ongoing fiscal year but is likely to rebound with a 11% growth in FY22, making for a “V-shaped” recovery, noted the Economic Survey 2021, taking cues from resurgence in high frequency indicators such as power demand, e-way bills, GST collection, etc.

It is also expected that the RBI may continue to hike banks’ held to maturity limits (HTM) till FY24 to fund high fiscal deficits without hardening yields. The RBI has already hiked banks’ HTM limit by 2.5% of book till FY22 to support recovery by enabling the Centre to run higher fiscal deficits.

“Banks will buy G-secs without fearing maturity to market (MTM) hits. RBI contains yields/lending rates by incentivising banks to invest the $80 billon money market surplus in G-secs without fear of MTM hits. As banks raise deposits at 5%, they would invest in G-secs at, say, 5.9% if exempted from MTM hits. It is fairly reasonable to assume that yields will rise over the next 12 months as growth normalises. Although we expect the RBI MPC to cut 50bp in 1H21, as inflation abates to the RBI’s 2-6% inflation mandate, we also see a 100bp hike in FY23. We are tracking December inflation at 5.2%,” said, Indranil Sen Gupta, India Economist, BofAS India.



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , ,

How the MPC’s policy rates matter to you

Personal Finance

[ad_1]

Read More/Less


Banker Balu’s long spell in front of the TV provoked his daughter Malathi into asking some questions.

Malathi: Dad, for God’s sake, stop watching that boring stuff and let me get to Netflix. How on earth is this speech on repo, Marginal Standing Facility, etc., useful to us!

Balu: Remember your savings account? Recall that fat education loan I took? The MPC’s decisions determine what rates you’ll earn on that deposit and what rates I’ll pay on your loan.

Malathi: Okay, if it’s about your money, I’m interested. What’s this repo and reverse repo rate thing which they’ve not changed?

Balu: The repo rate, short for repurchase rate, is the rate at which banks borrow quick money from the RBI, when they’re a little short of funds. The RBI keeps a special window called the liquidity adjustment facility (LAF) open for just this purpose.

Malathi: Don’t tell me banks run short of money and go broke!

Balu: He he! Sometimes they do, like one bank I won’t name. But we bankers often face temporary mismatches between our deposit inflows, repayments and loan outflows, which we try to plug with LAF. When we have extra money, we deposit it with the RBI at the reverse repo. Don’t you run to me to top up your account at month-ends?

Malathi: So, banks can simply walk up to the RBI and ask for money. Sounds lovely! Please open an LAF window for me, Daddy.

Balu: Sure, give me your smartphone as security. The RBI doesn’t hand out money to banks, it takes government bonds as collateral.

Malathi: Fat chance! The MPC just said that the repo rate is at 4 per cent. So, banks can borrow tonnes of money at 4 per cent and give us loans at 12 per cent? Now I know why you’re a banker.

Balu: The RBI allows banks to borrow from LAF upto a small fraction of their deposits, usually 0.25 per cent. If they need extra funds, they need to tap into the RBI’s Marginal Standing Facility, or MSF, at a higher rate.

Malathi: Why does this MPC tinker with the repo, MSF, etc? Can’t it just set them once and for all?

Balu: The MPC has to ensure that inflation doesn’t go out of control. So it regulates the price of the money – the interest rate.

When the price of money is high, there’s less of it chasing goods and services and presto, you have less inflation.

Malathi: But do repo changes affect our loans too?

Balu: Yes, your education loan is at 2 per cent over the banks’ lending rate, which is called MCLR. So, if the bank raises its MCLR, the loan becomes more expensive. But deposits will fetch me a little more, too, as my savings account rate is based on the repo rate.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , ,
1 2