Industry Reactions: RBI kept benchmark interest rate unchanged at 4 per cent

Reserve Bank of India (RBI) today (February 10, 2022) kept the benchmark interest rate unchanged at 4 per cent. It decided to continue with its accommodative stance in the backdrop of an elevated level of inflation. It may be mentioned here that this is for the 10th consecutive time that the Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das has maintained the status quo. City Air News has received industry reactions on the policy. Here are these reactions:

Sandeep Runwal - President, NAREDCO Maharashtra and Managing Director, Runwal Group
"In view of inflationary concerns, the Reserve Bank of India (RBI) has continued to maintain the status quo on key policy rates. It has taken a proactive stance to ensure liquidity. The MPC also maintained that the 'accommodative' stance will continue as long as needed. This will provide the required fuel for the growth of the economy along with the real estate industry, which is allied with several other sectors. As the industry is recovering from the impact of the 3rd wave of Covid, it is important to support growth and spending. By keeping the interest rates unchanged, RBI has clearly indicated that it is looking for sustainable growth and boosting consumer sentiments."

Siddhartha Sanyal, Chief Economist and Head of Research, Bandhan Bank
“The RBI was emphatic in conveying their commitment to support recovery in economic activities. While uncertainty about the inflation trajectory in the coming months cannot be ignored, the central bank seems clear in favour of following an extremely calibrated and nuanced pace of normalization of monetary policy and withdrawing the crisis time support, even if that means erring on the side of caution.
The RBI was more proactive in providing large quantum of liquidity to support the economy during 2020 and 2021 rather than cutting rates aggressively. Thus, it is not surprising that the central bank is now prioritizing unwinding of surplus liquidity over rate action.
Bond yields witnessed a knee-jerk uptick following the larger-than-expected government borrowing in the Union Budget. Today’s MPC announcement of status quo on the reverse repo rate will likely provide a cushion to yields and help it stay closer to the pre-budget levels in the coming weeks.”

Sachin Agrawal, Co-founder & COO, Bizongo
“Financial inclusion and technological transformation of MSMEs is now a priority. As of Q1 2020, MSMEs faced a credit gap of ₹16 lakh cores. In May 2020, when the repo rate was reduced to historic lows, India was just starting to confront the challenges of the pandemic era. In 2022, the primary challenges facing the Government and RBI, are that of uneven growth and inflation. This combination, if untamed, can lead to a double-whammy for MSMEs, especially for MSMEs producing price-sensitive products, such as textiles.
Global trade in 2021-22 was defined by fluctuating costs of commodities, materials, and logistics. In India, MSMEs had to confront the rising costs of inputs, and also ensure consistent demand for their products. This resulted in the inability of MSMEs to pass on these rising input costs. As part of the Budget, the Government has extended the term of the ECLGS with an additional corpus of ₹50,000 crores, and capped the surcharge from LTCG at 15%. More importantly, MSMEs are now permitted to use surety bonds, which has lowered barriers to access credit.
In this context, we welcome the RBI’s decision to maintain an accommodative stance with regards to the repo rate. A lower interest rate on loans will not only will it mean cheaper access to credit for MSMEs, it will also allow consumers to make larger purchases. These initiatives will enable MSMEs to invest their working capital for business requirements and growth, and not bridge credit deficits.”
  

Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory
"Keeping the Repo Rate & Reverse Repo Rate intact was on expected lines. This was needed not only because of the increased government borrowing but also to accelerate the current economic growth trajectory. This is  good news for the housing market as historically a low interest-rate regime has always pushed the real estate market in India."

Pritam Chivukula, Co-Founder & Director, Tridhaatu Realty and Treasurer, CREDAI MCHI
"RBI's decision to continue with their accommodative stance keeping in mind the inflationary concerns was on expected lines. The low-interest rates have been a crucial factor in the revival of the demand in the real estate sector. In the past few months, the buyers have made the most of the rock-bottom interest rates on home loans along with offers from good developers. This might also be the last opportunity for the homebuyers to purchase property with low-interest rates before RBI decides to hike it in any of their future bi-monthly policies. Also, to keep the prices down on the account of rise in raw materials prices will be a huge challenge in front of the developers."

Shraddha Kedia-Agarwal, Director, Transcon Developers
"RBI maintaining status quo on key policy rates was expected given the inflationary concerns in recent months. The decision will help to sustain liquidity for some more time which will augur well for the real estate sector and the overall economy. The low-interest rates for the last few months have already given a boost to the real estate sector upticking the demand in the last few quarters and enhancing the confidence of the homebuyers. The decision will therefore help to keep up the momentum going forward as well."

Bhushan Nemlekar, Director, Sumit Woods Limited
"The RBI's decision to maintain its accommodative stance was on the expected lines considering the outlook for inflation and growth. The Government has always taken affirmative measures to revive the economy and alleviate the Covid-19 impact with sustained fiscal & monetary support. The prevailing low home loan rates are already enticing for homebuyers which have immensely benefited the real estate sector. This decision will create further demand and sustain the growth momentum in upcoming months."

Jitesh Lalwani, President, Home Sync Real Estate Advisory Services
''We welcome the RBI's decision to continue with their accommodative stance keeping in mind the economic concerns in near future. The measures announced for liquidity amplification in the economy are indeed a progressive step and were much needed. Real estate has been severely hit during the pandemic and the recent Budget announcements and the RBI's decision today will boost the sector to cope with markets’ uncertainties.''

Dhiraj Relli, MD & CEO, HDFC Securities.
“The MPC of the RBI decided to keep key rates unchanged at its meet on Feb 08-10 and maintained accommodative policy stance. The outcome was more dovish than most economists expected. Though the intent of the RBI to support the recovery in economy in the face of disruption due to Omicron variant is commendable, economists will now  fear whether the RBI will fall behind the curve, having maintained the easy monetary stance longer than most other Central Banks had. The RBI has projected 4.5% CPI in FY23 (vs 5.3% for FY22), with CPI expected to fall sustainably below 5% in Q3FY23. One hopes that the inflation trajectory will soon come under control and the bet of the RBI pays off. Quarterly GDP growth projections remain volatile due to base effect with 4.5% growth projected for Q4FY23 compared to 7.8% for the whole of FY23. Equity markets may temporarily welcome this decision but will be largely driven by the balance Q3 Corporate results, outcome of state elections and changes in global risk appetite.”

Abheek Barua, Chief Economist, HDFC Bank 
“The RBI policy was largely on expected lines with, yet again, a clear emphasis on ensuring that the economy is on a path of durable growth recovery. It showed a clear tilt towards growth and a view that inflation, where elevated, is driven more by the supply disruptions rather than entrenched demand side pressures. Also, its projections show that inflation is on a downward trajectory. This was the first policy of the calendar year and perhaps sets the tone for the rest of the year. Were that indeed the case, the RBI is likely to follow a gentle approach to the normalization and ultimately withdrawal of monetary support unlike Western central banks that have switched to a hyper-aggressive mode. This is consonant with the growth and inflation dynamics specific to India.”

Dr. Samantak Das, Chief Economist, and Head, Research and REIS, India, JLL. 
“The policy of continuous support for sustained and durable growth is driving to maintain the status quo in repo rate at 4% as well as the reverse repo rate at 3.35%. Though the current inflation levels are elevated, it is expected to moderate over the next few quarters. The Monetary Policy Committee (MPC) has unanimously maintained the ‘accommodative’ stance to give priority to GDP growth. This decision of MPC is extremely welcome for the Indian real estate sector.
Indian residential market staged a smart recovery in 2021 as sales grew by 72% year-on-year and reached close to 90% of the pre-Covid 2019 sales levels. One of the important factors driving home buying is record-low mortgage rates. With this unchanged policy rate, the lending agencies will continue to maintain the prevailing low home loan interest rate. Our expectation is that during the current calendar year, the residential sector will surpass the pre-pandemic level of sales backed by ‘affordability synergy’. However, we have to keep a close watch on the global policy changes and headwinds, particularly the movement of the US fed rate.”
 

Anish Mashruwala, Partner, J Sagar Associates (JSA)
“The RBI MPC statement today underlined its supportive stance towards growth and revival to pre-pandemic levels, keeping in line with the recent Budget. However, while ensuring that there was positive messaging around growth and revival measures, the RBI did not lose sight of its inflation oversight and check and the announcement had calibrated caution to deal with any external shocks related to crude prices and the resurgence of any Covid variant. Accordingly while keeping policy and interest rates unchanged as per market expectations it was also emphasised that both core inflation and headline inflation were within tolerance limits and were being monitored. The announcement further stated that given the RBI measures and the outlook an accommodative stance on policy measures would also be possible in the near future indicating that a continued growth trajectory was being prioritised to bounce back from the pandemic. The announcement also recounted the success of various RBI action on the banking and non-banking industry during the pandemic as well as the actions to maintain liquidity. The announcement did keep the “icing on the growth cake” for last by announcing additional measures at the end. In particular the enhancement of the limits by Rs. 1 lakh crores to take the limit to Rs. 2.5 lakh crores for FPIs in the long term debt investment under the VRR route will be cheered by both domestic industry and foreign investors. The MSMEs were not left behind in the party with the increase in the settlement limits in NACH from the current Rs. 1 lakh crore to Rs. 3 lakh crores under the TReDs receivable discounting platforms for MSMEs. All in all today’s was a very positive announcement for a return to normalcy from the pandemic and as the Governor indicated that while protecting life remains the first priority in the wake of the pandemic, economic livelihood is also the rising focus in the list of priorities.” 
 

Ankit Bhatnagar, Head of Product, Mswipe 
“RBI’s decision of increasing the cap on e-RUPI vouchers to Rs. 1 lakh from Rs.10,000 will further democratize digital payments and will definitely help increase digital payment acceptance in Tier 2 and 6 in 2022. Unlike other digital payment modes, beneficiaries need not have a bank account for e-RUPI services and hence RBI’s proposal will further provide enhanced flexibility, transparency and ease to customers while allowing them to use a single voucher multiple times. At Mswipe, we believe that the increase in cap on e-RUPI will see rise in e-RUPI transactions across its 5.25 lakh terminal and 1 million QR merchants. Besides, increasing NACH Mandate Limit for TReDS Settlements from INR 1 crore at present to INR 3 crore is a welcome move. This will pave the way to help bridge the current MSME credit gap, reduce processing time and ease the financing needs of MSMEs.”  
 

Samuel Joseph, DMD, IDBI Bank:
“MPC has again surprised the pollsters. By leaving the rates unchanged and continuing the accommodative stance and more importantly the guidance for 2022-23 inflation at 4.5%, the policy is extremely positive for the markets. The divergent monetary policies across the globe could throw up surprises going forward, which could be tackled in the April policy”.

Rajiv Sabharwal, MD & CEO, Tata Capital Ltd. 
“Contrary to market expectations RBI continues to maintain its rate status quo and accommodative policy stance as well. This will accelerate the growth momentum in the economy. Further, RBI has taken cognizance of the measures taken by the global central banks with respect to tightening of interest rates but remains committed to support sustained economic activity. 
The recent spike in crude oil prices and the spillover effect on the inflation trajectory is being monitored closely by the RBI. The softening in food inflation and strong agricultural output will help manage inflation within the comfort corridor of the RBI 
RBI continues to offer assurance to the markets that there will be a rebalance in the overall systemic liquidity on a dynamic basis and aims for a smooth evolution of the yield curve. The bonds market should draw comfort from this measure and alleviate any price volatility concerns.”

Prasenjit K. Basu – Chief Economist, ICICI Securities
"Given global headwinds and the prospect of a gradual moderation of India’s CPI inflation, it is eminently sensible to persist with the accommodative stance.
A key reason to keep the policy interest rate at historic lows longer is to spur a more durable rebound in private consumption. India did not massively boost monetary growth during the worst phase of the pandemic (as the US Fed, ECB and BoE did), so there is less need for the RBI to roll back monetary accommodation this year. 
As the strong rabi crop boosts food supply in April-June, and other supply disruptions from the Third Wave of the pandemic recede, India’s CPI inflation will moderate, allowing policy rates to remain low for longer than in the developed world. That will provide a boost to equity valuations, and help spur a broad-based recovery in consumption and investment."

Abhishek Kapoor, CEO, Puravankara Limited.
“The unchanged REPO rates by RBI is a welcome move. While several industries anticipated an alteration in the rates, the sustained accommodative stance signals the government’s commitment towards housing. We are confident that this decision will enable a larger demographic of consumers to enter the market and invest in real estate.
The latent demand for homes will bolster the economy and lead to buoyant consumer sentiment helping the RBI achieve its GDP target of 7.8% for FY 2022-23.”

Umesh Revankar, Vice Chairman & MD, Shriram Transport Finance 
“Pleasantly surprised by RBI’s more dovish than expected stance and it continued to prioritise growth by keeping rates unchanged and also maintaining an ‘accommodative’ stance for as long as necessary. Despite commodity prices being elevated, RBI is confident of maintaining prices and that is encouraging. The accommodative stance also indicates that there will be no aggressive rate hikes in 2022, which is a positive for consumers. Any hike in rates would have impacted MSME which are in revival mode. Both the RBI and the government with its thrust on capital spending in the recent budget are working in tandem to revive and support broad based economic recovery. Considering this we continue to remain optimistic about revival in CV demand especially demand for Medium to heavy vehicles (MHCV) which has seen demand contraction in last two years. CV sales in Q3 have been flat, but now with the infra push from the budget 2022 we expect a healthy revival in credit in 2022.”

Vipul Singh, Founder and CEO, Aarav Unmanned Systems (AUS):
 
“Very encouraging news for the India drone ecosystem. With so many socially impactful use cases across the country, how long can we rely on borrowed technology and expertise? We see this import ban as a powerful step in making India self-reliant. And there is a huge potential for India to become a big exporter of drone technology in the near future. We are definitely on track to enable more technology creation in India and truly Make in India”.

Reeju Datta, Co-Founder, Cashfree Payments  
“Currently the use of eRUPI is popular for use-cases like disbursal of government benefits, primarily for Covid 19 vaccinations. The former cap of Rs.10k also restricted its use for smaller value use-cases. This cap is now enhanced for government use-cases upto Rs. 1 Lakh, broadening the scope of eRUPI issue to larger value use-cases. eRUPI’s key benefit for governments is in enabling penetration among the unbanked and feature phone users, allowing issue without needing the recipient’s bank account or KYC. The proposal  will further help in the delivery of various government schemes to the beneficiaries more efficiently. In addition to govt issued vouchers, extending this new cap to other B2C use-cases should also be considered, by improving the acquiring infrastructure for eRUPI and integrating it with existing POS systems. This will also encourage its use by private corporates and for other customer segments as well, such as larger value corporate gifting, transit/payroll/student cards, forex travel cards, etc.”
 

Pranay Jhaveri, MD, India and South Asia, Euronet Worldwide
“Built on UPI rails, e - Rupi removes friction, works in an offline mode, and enables the large population of people receiving DBT to grow their digital payments footprint. This step of raising the e- Rupi limits to 1 lakh would accelerate DBT dissemination by the Government and allow accrual, ultimately resulting in improved welfare of the underprivileged section of the economy.We have built this capability on our UPI platform and the same can be leveraged by our banking partners.”

Atul Kumar Goel, MD and CEO of Punjab National Bank (PNB)
“RBI has decided to keep the benchmark rates unchanged for tenth time in a row with continued accommodative stance in order to revive and sustain the growth recovery as policy is at present required for broad based growth going forward. RBI also expressed that despite uncertainty on global economic front, Indian economy to remain the fastest growing economy in the world.
On banking front, RBI held that the banks in India should continue the process of capital augmentation and also focus on the governance and risk management. RBI expressed sanguinity about the health of Banks’ balance sheets and we believe that the improving capacity utilization aiding investment demand will lead to credit growth. 
The current liquidity scenario remained in surplus despite showing moderation with migration towards longer tenor as VRRRs of longer maturity increased from 50 bps from Aug’21. In Liquidity management, the announcements of the VRR and VRRR of 14 day tenor to operate as main liquidity management tool; and availability of fixed rate reverse repo and Marginal Standing Facility from 5:30-11:59 PM on all days will facilitate the better liquidity management.
Amongst other announcements, Extension of on tap liquidity for emergency health services and contact intensive sectors till June 30, 2022 augurs well for the sector. Enhancing Limit for inflows under the Voluntary Retention Scheme hiked aimed at providing additional sources of capital for domestic debt markets. The other announcement of enhancing cap on e-rupee vouchers to strengthen the digitalization efforts. New directions are to be announced for CDS & participation in the offshore Foreign Currency Settled Overnight Indexed Swap (FCS-OIS) market will provide further fillip to the corporate bond market and interest rate derivative market respectively. NACH mandate limit increased to ₹ 3 crore for TReDS settlements will support the liquidity requirement of MSMEs.”

Mandar Agashe, MD, Founder & Vice-Chairman of Sarvatra Technologies Ltd. 
"e-RUPI is a great innovation on the UPI platform. It can be seamlessly availed even in the absence of a bank account, smart phone or internet connectivity and therefore, is an excellent instrument to drive financial inclusion at the last mile. e-RUPI was launched last year on a pilot basis primarily for Covid-19 vaccination purposes. Now that it has witnessed success for Covid-19 vaccination use-case, RBI has increased the cap from 10k to 1 lakh and has also converted it into a multi-use payment voucher, thereby extending its utility across a wide range of new use-cases that will emerge over time. e-RUPI is an excellent initiative whereby a host of services including welfare services can be extended directly to the beneficiaries on their mobile in the form of an e-voucher powered by UPI. Thus, a contactless and cashless prepaid digital payment system will go a long way in bringing people without a bank account, a smartphone and internet connectivity to UPI.
Additionally, this will also interest the private sector and MSMEs to deliver employee benefits besides exploring a wide range of B2B transactions. Also, the new payment medium can be controlled and therefore, despite raising the cap or using it more than once, the issuer can ensure the amount is spent for the allocated purpose and can track the redemption. The proposal would expand the usage of digital payments, especially to India's most remote locations, propelling the country closer to its long-held goal of being a cashless economy."