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RBI policy will help revive growth amidst the second wave of Covid, say Bankers

The status quo on rates and the accommodative stance of the Reserve Bank of India will help revive growth amidst the second wave of the Covid-19 pandemic, bankers said.

“The RBI approach to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis is quite encouraging. Given the challenging situation, the status quo on signal rates is on the expected line,” said Raj Kiran Rai, Chairman, Indian Banks’ Association and Managing Director and CEO, Union Bank of India.

Dinesh Khara, Chairman, State Bank of India, said the coordinated and active efforts of the RBI and government will support growth on a more durable basis during these difficult times

“The policy announcements of the RBI are clearly focused on extending liquidity support to stressed sectors by a more equitable distribution. The growth and inflation numbers have been revised looking at the current uncertain environment. The policy announcements are unequivocal in supporting growth through liquidity and market interventions through Regional Rural Banks and also by fast tracking resolution of stressed MSME sector,” he said.

“The decision of keeping the repo rate unchanged along with maintenance of accommodative stance is on expected lines and necessary to mitigate the growth uncertainty and inflation concerns,” said SS Mallikarjuna Rao, Managing Director and CEO, Punjab National Bank.

Zarin Daruwala, Cluster CEO, India and South Asia markets (Bangladesh, Nepal and Sri Lanka), Standard Chartered Bank, said, RBI’s reiteration of its accommodative stance till economic growth recovers, should help ease financial conditions and cap interest rates.

“RBI continued its focus on targeted credit delivery to sectors in need of liquidity by augmenting the special liquidity window to SIDBI for on-lending to MSMEs and by providing Banks with subsidised on-tap liquidity for on-lending to COVID intensive sectors,” she further noted.

Economists said a further downward revision in the RBI’s growth projection of 9.5 per cent for 2021-22 is possible while inflation may be higher than the estimated 5.1 per cent.

“The second wave of the pandemic, apart from immediate loss of economic activity, will likely also result in medium-term headwinds in recovery in business and consumer confidence. While the RBI has lowered their 2021-22 growth forecasts today by 1 percentage point, one feels further material downside to the same remains a possibility,” said Siddhartha Sanyal, Chief Economist and Head – Research, Bandhan Bank.

“We think a critical mass of the population will be vaccinated by December, and the rise in activity and demand will give producers the confidence to pass on higher input costs to consumers, putting upward pressure on core inflation,” said a note by HSBC Global Research.

However, as long as CPI inflation remains under 6%, we are not expecting a repo rate hike in the foreseeable future, or for as long as private investment remains subdued, it further said.


Source: The Hindu Business Line | June 07, 2021

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