RBI confident of borrowing program in a non-disruptive manner, maintains Accommodative stance

The first monetary policy review after the Union Budget FY2021 resulted in unchanged repo rate at 4 percent and reverse repo rate at 3.5 percent on the expected lines. The regulator maintained an accommodative stance, mentioning the improved outlook for growth in backdrop vaccination drive.

The data observation highlighted that sales and new launches of residential units in major metropolitan centres are on upbeat, which reflects a renewed interest in the consumer demand in lieu of favourable external market conditions like reduction in premiums, stamp duty, low interest rate, deal sweetener by developers etc. This also reinforces the imperative need to resuscitate the real estate sector that has a positive multiplier effect on the 270 allied industries, leads to additional job creation and attracts new investment to bolster GDP growth. Effectively, any further rate cut would have enabled to industries across the board to combat the negative impact of economic and help to sustain the upbeat growth momentum

The two major aspects where India In would like to draw the attention of the regulator are extension of IBC provisions by further six months that helps the normalising industries to streamline its business operations without turning into high level NPA’s post 01 April 2021 and permit additional stress fund to extend quick last mile funding. Mentioning that the outlook for growth has improved on growth impulses and rollout of Covid-19 vaccine, the RBI Governor said the MPC had decided to continue with an accommodative stance of monetary policy as long as necessary, at least through the current financial year and into next year, to revive growth on a durable basis and mitigate the impact of Covid-19. 

The prime objective of an economic revival has been addressed in this review, with the announcement of innovative measures which will enhance liquidity. These include allowing NBFCs to access TLTRO on tap scheme; allowing additional credit for small MSME borrowers up to Rs, 25 lakh, and exemption to FPI investment in defaulted corporate bonds which will further foster investment in the economic revival cycle, as also measures to firm up consumer protection. Also, the announcement that RBI will form an expert panel to strengthen primary urban co-operative banks is definitely welcome.

The regulator had a daunting task to ensure that additional borrowing program is charted out without disrupting other market players. This has been well addressed by drawing out innovative liquidity injecting programs. Thus, the revival of consumer confidence and business expectations of manufacturing, services and infrastructure remaining upbeat augurs well for growth outlook in 2021. Also, with the movement of goods and people and domestic trading activities growing at a robust pace, there is strong conviction that fiscal measures in FY22 will combat the damage of Covid-19. Hence, the year 2021 is setting up a new era in the course of our economic history.