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Bankers, experts hail RBI measures to boost economy, improve money supply

New Delhi: Economists and financial experts have welcomed RBI's widely expected status quo on repo rate, and other announcements to spur economic growth and ensure money supplies effectively.

Bank of India MD and CEO A K Das termed the RBI policy quite progressive and forward looking. "Notwithstanding unchanged policy rates, introduction of Term Repo opens up ways to transmit the signal rate changes," he said.

"Measures like DCCO extension for realty, MSME window expansion for restructuring and CRR exemption for incremental funding to key segments are growth oriented and promise to provide the much needed impetus to bank lending," Das said.

SBI Chairman Rajnish Kumar said the policy is "a statement of intent" carefully using a repository of policy novelties to address the current delicate balance of growth and inflation.

"While keeping rates on hold was anticipated, the bouquet of developmental and regulatory steps is a positive surprise to the financial ecosystem.

"Long-term repos for 1-year and 3 year at the repo rate, will bring down cost of funds for banks and will facilitate better transmission within the current constraints of downward rigidity of deposit rates," Kumar said.

According to Rajni Thakur, Economist, RBL Bank, MPC's decision was on expected lines.

"The changes in development and regulatory policies however were a positive surprise and could potentially turn out to be a big support to the troubled sectors in the economy," Thakur said.

Specific announcements in terms of CRR relief or long-term durable liquidity for banks push the overall credit availability in the financial system. Whether these steps manage to improve demand conditions is another question all together, she added.

Describing the policy as a "whatever it takes" moment for the country and policymakers, B Prasanna of ICICI Bank said these steps show willingness of MPC to think laterally.

"The crowning glory of all measures is the provision of long-term repos at the repo rate that is intended towards facilitating better transmission in the bond and loan markets. Besides lowering rates in the short end of the sovereign curve it is also likely to lower corporate bond yields, deposit rates and lending rates," he said.

Upasna Bhardwaj, Economist, Kotak Mahindra Bank said very aptly, MPC has addressed the growth concerns through pushing transmission via tweaking the liquidity framework, providing long term liquidity operations and incentivising credit to select sectors.

"We expect these measures to aid transmission with the shorter end of the yield curve expected to rally meaningfully. These measures should help availability of funds at lower costs and aid sectors in stress," Bhardwaj said.

ICRA Economist Aditi Nayar said: "The tone of the MPC's statement was rather dovish, especially given the reiteration that policy space is available for future action.

"The accommodative stance will be maintained for as long as necessary to revive growth, in spite of the headline inflation having breached the upper threshold of the MPC's medium term target."

The RBI also raised upwards the retail inflation projection for last quarter of this fiscal to 6.5 per cent citing high input cost for milk and pulses besides costlier crude oil prices amid rising geo-political tensions.

Nayar said the statement suggests the near certainty of at least one additional rate cut, even if its magnitude is modest, the timing of which will depend on how quickly inflation appears to be reverting towards 4 per cent.

Zarin Daruwala of Standard Chartered Bank India said, "The MPC delivered a strong pro-growth policy in the face of sluggish growth and high inflation." Cash reserve ratio leeway for fresh retail and MSME loans, a one-time permission to extend restructuring of MSME loans and concessional one-to-three year repo funds are all positive steps to bring down lending rates, she said.

Sunil Kumar Sinha of India Ratings said, "If the monsoon does not turn out to be normal, then the inflation forecast can have adverse impact on the food inflation which is already witnessing pressure from rising prices of items such as pulses and coarse cereals."

"Given this, despite continuing with the accommodative stance, RBI is unlikely to tinker with the policy rate till the second quarter of FY21," he said.

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