RBI may hold rates, tweak its forecast for growth – Times of India


Mumbai: The Reserve Bank of India (RBI) is expected to continue supporting growth by retaining its accommodative stance and holding rates despite inflationary pressures as economists scale down GDP forecasts. RBI governor Shaktikanta Das will announce the decision of the monetary policy committee on Friday at a time when many believe that the central bank has run out of ammunition.
“It is going to be a hold policy on pretty much every parameter,” said Axis bank chief economist Saugata Bhattacharya. According to Bhattacharya, the RBI is expected to hold the repo rate, retain its accommodative stance and also continue with its government bond purchase programme for around Rs 1 lakh crore. “What we are looking for is a change in the growth and inflation forecast,” said Bhattacharya. The RBI has already acknowledged the downside risks to its forecast of 10.5% due to the second wave of the pandemic.
Yes Bank chief economist Indranil Pan said, “We do see a realistic chance for the RBI to reduce its earlier growth forecast of 10.5% and highlight increasing risks to the downside. Further, the RBI will continue to pursue its broad intent of plugging weak spots in the economy and ensure adequate liquidity flows to various segments.” According to Pan, the room available for traditional monetary policy is increasingly becoming constricted. “In the absence of any further opportunity to cut rates, we expect the RBI to continue to use its balance sheet to keep financial market conditions easy.”
Most growth forecasts for the Indian economy are now in single digits. Most recently, rating agency Moody’s pegged India’s GDP growth in FY22 at 9.3%. Markets are also waiting to see what advice the governor gives the government. The Union Budget proposed to stimulate demand by allocating a large amount to infrastructure. Given that demand is likely to get hit because of loss of livelihood and additional medical expenditure in urban and rural areas, there is a feeling that the government should divert some funds for relief.
With the pandemic hurting economic activity in the first quarter, there are fears of more loans going bad. This could call for some relief measures. “The RBI in its Financial Stability Report had projected NPAs (non-performing assets) to increase to 13.5% by September 2021 (baseline scenario). There have been reports that collections in the NBFC (non-banking finance companies) space have been low amidst regional lockdowns. Despite this issue, the silver lining is that due to fund-raising activities, the banks are well capitalised and the provision coverage is adequate,” said Care Ratings in a monetary policy report.

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