Latest News Today – Vaccination Push Has Brightened Near-Term Prospects Of


Aggressive vaccination push has brightened near term economic prospects, RBI has said

The near-term prospects for the Indian economy have brightened with the tapering of the second wave as well as aggressive vaccination push, is what the Reserve Bank of India (RBI) has observed in its monthly bulletin for July 2021, while commenting on the overall state of the economy.

At the same time though, it has noted that a substantial increase in aggregate demand has not happened, even though various high frequency indicators have shown a recovery.

On the other hand, the central bank’s bulletin said that agricultural conditions are favourable with monsoon’s revival, however the second wave has adversely impacted the revival of manufacturing and services sectors.

“A pick-up in inflation is driven largely by adverse supply shocks and sector-specific demand-supply mismatches caused by the pandemic,” the bulletin said.

These factors should ease over the year as supply side measures take effect, it noted.

Monetary policy transmission in the country is the second key area under focus in RBI’s bulletin, where it has said that transmission of policy repo rate changes to deposit and lending rates of scheduled commercial banks (SCBs) has improved substantially since the introduction of external benchmark linked lending rate (EBLR) regime in October 2019.

“Data collected from banks suggest that the share of outstanding loans linked to external benchmark in total floating rate loans has increased from as low as 2.4 per cent during September 2019 to 28.5 per cent by the end of 2020-21,” it said.

The third main focus of RBI bulletin is on the pharmaceutical exports, where it has observed that the Indian pharmaceutical industry is currently heavily dependent on its imports of active pharmaceutical ingredients (APIs), especially from China, despite having domestic research and development (R&D) potential through various channels such as joint ventures and domestic capacity improvements.

It has suggested that timely diversification of imports of raw materials and a long-term approach towards R&D is required for elevating the sector’s global position.



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Latest News Today – Reserve Bank Of India (RBI) Announces G-SAP 2.0 Of Rs


RBI Monetary Policy 2021: Central bank kept interest rates steady to maintain status quo

The Reserve Bank of India (RBI), in its bi-monthly Monetary Policy Committee (MPC) Statement, said that another round of the Government Securities Acquisition Programme (G-SAP 1.0) worth Rs 40,000 crore will be conducted on June 17. Out of this, Rs 10,000 crore will constitute the purchase of state development loans or SDLs. RBI Governor Shaktikanta Das said that the central bank does not expect the market to respond appropriately to the announcement of G-SAP 2.0. (Also Read: RBI Monetary Policy Highlights: Lending Rates Unchanged, Growth Projected At 9.5% )

The specific dates and securities under the G-SAP 2.0 operations will be announced separately. The Reserve Bank planned a G-SAP of Rs 1 lakh crore for the first quarter of the current fiscal.

In its first bi-monthly monetary policy committee for fiscal 2021-22 held in April, the Reserve Bank had announced the secondary market G-SAP 1.0 scheme. As part of the program, the central bank committed upfront to a specific amount of open market purchases of government securities to ensure a stable and orderly evolution of the yield curve amid comfortable liquidity conditions.

”The announcement of G-SAP 2.0 to the tune of Rs. 1.2 lakh crores will ensure adequate liquidity in the system. Upward revision of inflation rate will raise bond yields marginally in the short run,” said Dr. Rajeev Singh, Director General, Indian Chamber of Commerce (ICC).

Shaktikanta Das said in his statement that during the current year so far, the RBI has undertaken regular OMOs and injected additional liquidity to the tune of Rs 36,545 crore, up to May 31, which is in addition to Rs 60,000 crore under the G-SAP 1.0 scheme.

RBI Governor added that a purchase and sale auction under the operation twist was conducted on May 6, to facilitate the easy evolution of the yield curve. Meanwhile, the redemption of government securities worth around Rs 52,000 crore in the last week of May fully neutralised the cash reserve ratio (CRR) restoration.

”As part of its objective to ensure adequate liquidity, RBI has continued with its GSAP 1.0 programme for Q1FY22 with a scheduled Gsec purchase of Rs 40,000 crore in June and importantly, taking it forward with GSAP 2.0 with the planned acquisition of another Rs 1.2 lakh crore in Q2FY22,” said said Mr Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research.

Along with the use of other tools such as OMOs and Operation Twist, these announcements are a clear message to the market participants that RBI would like to provide necessary support and facilitate a slightly downward bias on the bond yields,” he added.



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Latest News Today – Here’s What Shaktikanta Das-Led Monetary Policy Means


The RBI on Friday held the repo rate, its key lending rate, at four per cent

The Reserve Bank of India (RBI) kept interest rates steady at record lows and reiterated its commitment to keeping policy accommodative as a second wave of COVID-19 infections threatens to derail the country’s economic recovery. The RBI on Friday held the repo rate, its key lending rate, at four per cent and kept the reverse repo rate, the borrowing rate, unchanged at 3.35 per cent. (Also Read: RBI Monetary Policy Highlights: Lending Rates Unchanged, Growth Projected At 9.5% )

In a Reuters poll, all 51 economists surveyed had expected the RBI’s monetary policy committee (MPC) to leave rates unchanged as Asia’s third-largest economy grapples with various state lockdowns.

Gaurav Garg, Head Of Research, Capitalvia Global Research, Mumbai

“The cause of concern for investors now is inflation, which seems to outweigh the benefits of cheaper credit, as inflation and the pandemic are expected to impact the real income and purchasing power of end-users, thereby, impacting the Q1 numbers of FY 2021-2022 for corporate India.”
 

Shashank Mendiratta, Economist, Ibm, New Delhi

“On growth, the central bank reduced its GDP forecast by 100 bps to 9.5%, due to increased spread of COVID-19, lockdowns, and moderation in many high-frequency sentiment measures.

“The RBI also raised its inflation projections slightly on account of upside risks emanating from the second wave. 

“However, given the current level of output gap and demand-side consideration in the economy, we do not anticipate any change in current policy settings for the rest of 2021. At the same time, we expect the central bank to continue to focus on liquidity measures to mitigate the impact of the pandemic.”  
 

Madhavi Arora, Lead Economist, Emkay Global Financial Services, Mumbai

“The bigger move was with regards to yield management as the RBI stressed on smooth liquidity management and orderly GSec borrowings, with a more vocal and defined GSAP.

“Overall, while we do not see any action on the policy rate front in the coming months, we are poised to see a more accountable and action-oriented RBI ahead. We reckon even as yields may inch up gradually and orderly, the RBI will continue to strive fixing skewed yield and maintain its preference for curve flattening (with GSAPs and OMOs). We see net OMO + GSAP purchases to the tune of 4.5 trillion rupees ($61.64 billion) to 5 trillion rupees in FY22.”
 

Yuvika Singhal, Economist, Quanteco Research, Delhi

“The RBI’s reassurance of liquidity to markets with the announcement of a third tranche of GSAP 1.0 (G-Sec Acquisition Programme) and the next round of GSAP 2.0 of 1.2 trillion rupees was on expected lines. Inclusion of state development loans (SDLs) in the GSAP programme, however, is a welcome step and likely to curb the pressure on SDL spreads (which appears somewhat elevated at 75-80 bps currently). 

“Among other support measures, liquidity window for contact-intensive services sectors comes as a much-needed lifeline to mitigate COVID-induced impact.”
 

Tanvee Gupta Jain, Chief India Economist, Ubs, Mumbai

“The monetary stance has been accommodative in the past year and the policy (repo) rate is already at an all-time low of 4%. However, despite negative real rates and record-low mortgage rates, credit impulse in the system has continued to remain weak.

“We expect the RBI to likely delay policy normalisation until next year (March 2022 quarter) and to keep financing conditions easy in the interim to support economic recovery and ensure the smooth functioning of the government’s borrowing calendar.”    
 

Deepthi Mathew, Economist, Geojit Financial Services, Kochi

“The announcement of G-SAP 2.0 at 1.2 trillion rupees  ($16.44 billion) for Q2FY22 shows the RBI’s commitment to keeping the bond yields in check. The inclusion of SDL on G-SAP would support state government borrowings from the market.”
 

Sakshi Gupta, Senior Economist, Hdfc Bank, Gurugram

“We expect Q1 growth at 15-16% as rural demand takes a hit and supply chain disruptions weigh on economic activity. 

“The RBI revised up its inflation forecast to 5.1%. We see further upside risks to this forecast as input cost pressures continue to rise and feed into retail prices over the coming months. The announcement and increase in GSAP 2.0 amount is likely to bring further relief for the bond market. Inclusion of SDLs in the GSAP is likely to provide some relief for states borrowing costs with states under increased fiscal pressure due to the second wave. 

“We expect 10-year yield at 5.95-6.05% for the coming months.”
 

Prithviraj Srinivas, Chief Economist, Axis Capital, Mumbai

“The central bank continues to maintain a conservative stance on CPI (5.1% for FY22 vs. 4.9% three-quarter average previously). To tackle likely pressures on domestic interest rates, the RBI highlighted presence of $600 billion foreign exchange reserves as a deterrent ahead of a crucial FOMC meeting and gave predictable indications on RBI bond-buying programme, G-SAP 2.0.

“In addition, there were other credit facilitation measures for severely impacted high-contact services sectors.”
 

Kunal Kundu, India Economist, Societe Generale, Bengaluru

“The RBI scaled down its rather optimistic growth forecast for FY22 from 10.5% to 9.5%, in line with the worries expressed by them in several forums earlier as well as in their annual report about growth momentum hitting a roadblock, especially given the weakened pace of vaccination, which lies at the heart of recovery.

“In fact, we do expect further downward revision going forward as more and more high-frequency data is expected to exhibit levels of activity that will not be able to justify as high a real growth as 9.5%. 

“Not surprisingly, they assured that they would remain accommodative for as long as the economy needs and would ensure adequate liquidity in the system. That said, we believe that expecting the RBI to do all the heavy lifting for an economy suffering from massive demand destruction, is rather unfair on the central bank. Under the current circumstance, monetary policy ought to play a supporting role to a more expansionary fiscal stance especially in the form of fiscal support to households suffering from loss of jobs and income.”



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Latest News Today – RBI May Continue G-Sap Auctions To Keep Yields In Check,


RBI MPC Meet Preview: According to economists, the repo rate is likely to be unchanged

The Reserve Bank of India (RBI) Governor Shaktikanata Das-led Monetary Policy Committee (MPC) began its three-day deliberations on Wednesday, June 2, as economists and rating agencies expect the maintenance of status quo on benchmark rates, amid the severity of the second wave of the COVID-19 pandemic. According to credit rating agency Brickwork Ratings, the central bank’s rate-setting committee is likely to maintain the status quo on lending rates in view of optimistic growth in the March quarter. (Also Read: Reserve Bank Of India Expected To Keep Rates Steady, May Take Take Liquidity Measures )
 

Expectations from RBI Monetary Policy Committee 

Dr M Govinda Rao, Chief Economic Advisor of Brickwork Ratings said that the Reserve Bank is likely to continue with G-sap auctions in order to maintain the yields on government securities in check. He expects that the inflation rate may remain close to the upper bound target of six per cent in the near term. The central bank’s committee may continue to pause on the interest rates by maintaining the accommodative stance to support growth as long as inflation remains within the target range of the monetary policy framework, he explained. 

”The better-than-expected GDP numbers provide much-needed comfort to the MPC on the growth outlook. With the imposition of partial lockdown-like restrictions to contain the virus spread in several parts of the country, the downside risk on growth recovery has intensified….Considering the risk of inflation emanating from the rising commodity prices and input costs, Brickwork Rating expects the RBI MPC to adopt a cautious approach and hold the repo rate at four per cent,” said Dr Rao.

Economic Growth Outlook

  • According to the credit rating agency, the Reserve Bank is unlikely to undertake the heavy lifting that it did last year by expanding liquidity, for the fear of other adverse macroeconomic consequences. 
  • The estimates of the gross domestic product (GDP) released by the government on May 31, 2021, are more optimistic than what the market had expected. In the financial year 2020-21, the economy contracted by 7.3 per cent, and the agriculture sector witnessed a growth of 3.6 per cent, while the services and industry sectors contracted by 8.4 per cent and seven per cent, respectively.
  • The economic growth of 1.6 per cent recorded in the January-March quarter of the financial year 2020-21 brings optimism on the recovery front, however, the growth in the fourth quarter was largely due to low base effect. During the March quarter, all major sectors registered growth, including the manufacturing and construction sectors that picked up a faster pace in the quarter. 

Inflation Rates

Under the current situation, maintaining retail inflation at four per cent with a margin of two per cent on either side may pose challenges, according to Brickwork Ratings. The central bank will have to be vigilant as the current ease in retail inflation is driven mostly due to a favourable base and weaker demand.

The Reserve Bank tracks the retail inflation – or the rate of increase in consumer prices as determined by the consumer price index (CPI). Meanwhile, the RBI in its bi-monthly monetary policy review on April 7, 2021, targeted the retail inflation at 5.2 per cent in the first half of the current fiscal 2021-22, and mandated to keep it within the range of two per cent – six per cent band with four per cent as a medium-term target. 

In April 2021, retail inflation eased to a three-month low of 4.29 per cent on the account of easing of food prices such as vegetables and cereals, according to government data. 



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Latest News Today – As Covid Cases Spiral Upwards, Will Reserve Bank Hold


Monetary Policy: At its last policy meet in February, RBI maintained policy rates at pre-existing levels

Reserve Bank of India Governor Shaktikanta Das will announce the policy decision on Wednesday, at the end of a scheduled review of the Monetary Policy Committee (MPC) that began on Monday, amid a surge in COVID-19 cases and imposition of fresh restrictions to control the rampaging virus. India reported a record rise in coronavirus cases on April 5, becoming only the second country after the United States to register more than 1 lakh new cases in a day.

Experts reckon that the Reserve Bank will maintain status quo on policy rates at the first bi-monthly monetary policy review for the new fiscal as the economy faces a renewed threat to growth from the pandemic.

Maharashtra, which contributes about 15 per cent the country’s overall GDP, has already announced a partial lockdown and Delhi has unveiled night curfew measures to curtail the second Covid19 wave.

All economists surveyed by Bloomberg as of Monday expect the six-member Monetary Policy Committee to keep the repo rate unchanged at 4 per cent. In a Reuters poll, 65 of 66 economists surveyed said the RBI’s monetary policy committee (MPC) will leave rates unchanged.

At the last policy meet in February, the central bank had maintained key policy rates at pre-existing levels and said that it expected the economy to expand 10.5 per cent in the year that began April 1 after an estimated 7.7 per cent contraction in the previous 12 months. The banking regulator had maintained the repo rates – the key interest rates at which the RBI lends money to commercial banks – steady at a 19-year low of 4 per cent. The reverse repo rate – the rate at which RBI borrows from banks – has also been left untouched at 3.35 per cent.

The Reserve Bank had last cut its policy rates on May 22, 2020, in an off-policy cycle at a time when India was in the caught in the 1st wave of the dreaded Covid-19 pandemic. The central bank has slashed its key lending rate i.e. repo rate by 115 basis points since March 2020 to cushion the economy from the shock of coronavirus crisis.

Experts will, however, watch for any explicit forward guidance from the central bank as the return of the virus threatens the fragile economic recovery that is underway. The RBI’s action on the inflation front will also be closely watched as the annual retail inflation rate rose to 5.03 per cent in February, a three-month high due to the rise in fuel prices; analysts are worried that high commodity prices could push inflation higher in coming months.

Last month, the government asked the Reserve Bank to maintain retail inflation at 4 per cent, with a margin of 2 per cent on either side for another five-year period ending March 2026.

Investors would also be hoping for clarity on the Governor’s agenda for the bond markets, which have been recently roiled by hardening yields worldwide.



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Latest News Today – Reserve Bank Of India (RBI) Policy Committee Starts


The policy repo rate is currently 4 per cent and reverse repo rate is 3.35 per cent

RBI Governor Shaktikanta Das-headed rate-setting panel MPC started its three-day deliberation on the next monetary policy on Monday amid sudden surge in COVID-19 cases and the government’s recent mandate asking the central bank to keep retail inflation around 4 per cent. The Reserve Bank will announce the resolution of the Monetary Policy Committee (MPC) on April 7.

Experts are of the view that the Reserve Bank will maintain status quo on policy rates at its first bi-monthly monetary policy review for the current fiscal. It is also likely to maintain an accommodative policy stance.

The policy repo rate or the short-term lending rate is currently at 4 per cent, and the reverse repo rate is 3.35 per cent.

Last month, the government had asked the Reserve Bank to maintain retail inflation at 4 per cent, with a margin of 2 per cent on either side for another five-year period ending March 2026.

M Govinda Rao Chief Economic Advisor, Brickwork Ratings (BWR) said, given the rise in the spread of coronavirus infections and the imposition of fresh restrictions to contain the virus spread in the major parts of the country, RBI is likely to continue with its accommodative monetary policy stance in the upcoming MPC meeting.

“Considering the elevated inflation levels, BWR expects the RBI MPC to adopt a cautious approach and hold the repo rate at 4 per cent,” Mr Rao said.

Mr Rao noted that in the last MPC, RBI initiated measures towards the rationalisation of excess liquidity from the system by announcing a phased hike in the cash reserve ratio (CRR) for restoration to 4 per cent.

“In the current scenario, the RBI may like to drain in excess liquidity, while higher borrowings and the frontloading of 60 per cent borrowings in H1 FY21 may put pressure on yields, and hence, the RBI may go slow in reversing its liquidity measures announced as a COVID stimulus since March 2020,” Mr Rao added.

Meanwhile, G Murlidhar, MD and CEO, Kotak Mahindra Life Insurance Company said 2021 has seen a rise in yields across the globe in line with vaccination led optimism.

“However, the case for India is a little different this time, with rapid rise in new COVID cases over last few weeks. In upcoming policy, MPC may continue to emphasise the importance of ”orderly evolution of yield curve” given benign inflation trajectory and second wave headwinds to nascent growth recovery,” said Mr Murlidhar.

In a bid to control price rise, the government in 2016 had given a mandate to RBI to keep the retail inflation at 4 per cent with a margin of 2 per cent on either side for a five-year period ending March 31, 2021.

The central bank mainly factors in the retail inflation based on consumer price index while arriving at its monetary policy. On February 5, after the last MPC meet, the central bank had kept the key interest rate (repo) unchanged citing inflationary concerns.



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Will The Shaktikanta Das-Led RBI Tweak Rates? Key Things | Sidnaz Blog


The Reserve Bank has slashed its key lending rate i.e. repo rate by 115 basis points since March 2020

RBI Governor Shaktikanta Das-led Monetary Policy Committee (MPC) will announce its policy decision on Friday, at the end of a scheduled review that began on Wednesday. This is the first meeting of the six-member MPC after Budget 2021. The Reserve Bank has slashed its key lending rate i.e. repo rate by 115 basis points since March 2020 to cushion the economy from the shock of coronavirus crisis.

The central bank had last cut its policy rate on May 22, 2020 when Covid-19 posed an unprecedented challenge to the economy. Since then, the banking regulator has maintained the repo rate – the key interest rate at which the RBI lends money to commercial banks – steady at a 19-year low of 4 per cent. The reverse repo rate – the rate at which the RBI borrows from banks – is at 3.35 per cent.

The RBI is seen holding the repo rate at 4.0 per cent in 2021 and possibly beyond, according to the median estimate in a Reuters poll. Most experts reckon that the banking regulator will refrain from tinkering with interest rates as inflation has remained above its targeted 4 per cent for more than a year. It is likely to continue with an accommodative policy stance in order to push growth.

Retail inflation fell sharply to 4.59 per cent in December 2020, the latest data shows. Retail inflation based on the Consumer Price Index (CPI) was 6.93 per cent in November.

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Economists will closely watch for any changes in the RBI’s economic projections and views on the Budget, given that the country’s gross domestic product (GDP) is still in a contractionary mode amid signs of rebound. India was hit hard by the pandemic, suffering the worst contraction in the June quarter, and the GDP is projected to contract by a record 7.7 per cent in the current fiscal ending March 31, 2021.

A pick-up in manufacturing and rollout of the immunisation campaign has reduced some of the pessimism surrounding the economy. The Pre-Budget Economic Survey has predicted a “V-shaped” recovery, saying that the Indian economy will rebound, with 11 per cent growth, in the next financial year.

It would also be interesting to watch RBI’s stance on liquidity, particularly in wake of the massive borrowing programme announced in the expansionary budget as is reflected in the fiscal deficit, which has been pegged at 6.8 per cent for 2021-22.



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