Poonam Tandon, Chief Investment Officer at IndiaFirst Life Insurance Company, is of the view that the Reserve Bank of India (RBI) may continue with its ‘accommodative’ stance till the prospects of a sustained recovery are secured, although it will closely monitor the evolving outlook for inflation.
Tandon sees the growth revival broadening. According to her, the thrust provided on health and infrastructure in the Union Budget along with accommodative monetary policy will aid growth momentum
edited excerpt:
Q) What is your take on RBI policy especially after Budget 2021? What does the accommodative stance indicate now?
A) The overall tone of the monetary policy was dovish. RBI continues to remain committed to supporting growth while ensuring adequate systemic liquidity to support the large borrowing programme in a non-disruptive manner. The MPC decided to continue with an accommodative stance of monetary policy till the prospects of a sustained recovery are well secured while closely monitoring the evolving outlook for inflation.
Q: RBI expects FY22 GDP growth at 10.5 percent citing significant improvement in the growth outlook. It has the strong conviction that in FY22, India will undo the damage of COVID. Do you feel the growth expectations can be achieved in FY22?
A) The policy statement stated that rural demand is likely to remain resilient on prospects of good agricultural output whereas urban demand is also expected to improve with fall in COVID cases and vaccination. We are positive as growth revival is broadening and the thrust of the Union Budget on health and infrastructure along with accommodative monetary policy stance should further aid the growth momentum.
Q: The RBI has revised its CPI inflation projection to 5-5.2 percent for the first half of FY22 against 4.6-5.2 percent earlier, while the CPI inflation projection has been revised downwards to 5.2 percent for Q4 FY21 from 5.8 percent earlier. What is your view, and have you changed your projections? Will it remain above 5 percent in the current calendar year?
A) The CPI inflation has moderated coming in at around 4.6 percent in December 2020 after remaining at elevated levels for most of 2020. The inflation outlook is expected to remain stable to moderate levels (around 5 percent over the next 6 months) aided with a favourable base effect. GDP growth outlook has also improved while inflation within the MPC tolerance level provides more room to keep monetary policy firmly accommodative.
Q) RBI said CRR normalisation opened up space for more options to inject liquidity and announced a two-phase normalisation for CRR. It will gradually restore the cash reserve ratio to 3.5 percent in March & 4 percent in May. It extended MSF relaxation for another six months. What is your view on the same?
A) The phased manner of CRR normalisation would be accompanied by other measures to support liquidity and is expected to negate any adverse impact of CRR cut reversal. Also, the extension of MSF relaxation will provide comfort to banks on their liquidity requirements. Both these measures are non-disruptive and are aimed at restoring these to pre-COVID levels without impacting the liquidity conditions in the market. This is positive for the market as it will ensure a non-disruptive government borrowing and low volatility in the yields.
Q) RBI decided to include NBFCs in TLTRO on-tap scheme and will provide funds from banks to NBFCs under on-tap TLTRO. It will incentivise new MSME loans by banks. Will it boost NBFCs?
A) The RBI has permitted to include NBFCs in the Targeted Long-Term Repo Operations (TLTRO) on Tap scheme for incremental lending to stressed sectors. This is positive especially for smaller NBFCs as it will improve the liquidity access to those who otherwise were facing difficulties for raising funds. This will therefore ensure smooth functioning of the corporate bonds market.
Q) Retail investors can now open gilt accounts with the RBI. Is it a surprise? How retail investors should go about now with gilt funds?
A) This move is a positive surprise as the retail investors can directly open gilt accounts with RBI and now seamlessly invest in primary and secondary markets. At first, only savvy investors and those who are well versed in fixed income markets would utilize this route to invest in the gilts. However, for the very small investor who does not understand the intricacies of the government securities market, the gilt Fund route would be more appropriate.
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