Views of Ms. Anagha Deodhar – Economist, ICICI Securities on the RBI Monetary policy
The unanimous vote to keep repo rate unchanged is in line with our expectation, given high
inflation and expected inflation trajectory. Despite no rate cut, the policy is extremely dovish
due to the liquidity and regulatory measures announced today. More specifically, we believe ‘on
tap TLTRO’, OMOs in state development loans, extension of HTM limits till Mar ‘22, and
rationalisation of risk weights on housing loans are very important measures and are likely to
ease financial conditions further and provide support to key sectors of the economy.
The committee also gave forecasts on growth and inflation.
After the sharp 24% contraction in Q1FY21, the MPC expects growth to come in at -9.8% in
Q2, -5.6% in Q3 and 0.5% in Q4. We agree with the committee’s assessment that
manufacturing sector is likely to drive the recovery while relatively more contact-intensive
services sector could take a while to recovery.
On the inflation front, the governor noted that the recent pick-up in inflation is due to supply
disruption and higher markups during lockdown. Going forward, as supply chains are restored
inflation could ease to 4.5-5.4% in H2FY21.