Mumbai: RBI is expected to follow different strategies in terms of interest rates, which are at historic low and deal with Crore Rs 10 Lakh Surplus Sloshing in the banking system.
Responding to a pandemic, the central bank has reduced the level (repo) where it gives it to the bank to a low of 4% and also floods the bank with funds to ensure a loan.
Now with macroeconomic indicators that increase central banks may want to have a better grip on liquidity even because they continue to maintain low interest rates and ensure that there will be no shortage of funds.
Banks unanimously in their view that the central bank will adopt the status quo policy and continue to hold the repo level at 4%.
It is also expected to be widely expected that the central bank will continue to maintain accommodating attitude.
However, many now take care of the view that the central bank can absorb some of the excess liquidity floating to start the normalization of pandemic stimulus.
The next MPC meeting is scheduled for 6-8 October 2021.
Incidentally, in the previous policy, MPC member Jayanth Varma said that the level of the repo was reversed at 3.35% too low and he did not support it.
Last week, the RBI surprised the market by repairing a seven-day reverse repo disconnected at 3.99%, which was higher than expected and very close to the 4% policy level.
Moving by the RBI has pushed Citi to estimate that the central bank will climb the repo level next week (the rate in which the RBI borrows from a commercial bank).
If so, the RBI will become the first central bank to signal rollback from emergency measures during covid.
According to Bank of Baroda MD & CEO of Sanjiv Chadha, there are two parts for monetary policy stimulus – level and liquidity.
“You will hope that the liquidity discount will begin to normalize first.
Changes in exchange rate cycles are a few quarters in front.
Distortion in risk priced because the liquidity surplus must be sorted and we must begin to see such credit risk in normal times,” Chadha said.
What this means is that the reduction of liquidity will not make changes to the top ranking borrowers.
It is also impossible that lenders will touch the level of home loans, which are seen as safest loans.
However, the gap between what the top ranking borrowers and lower payments can be widened.
For retail borrowers, the good news is that banks actually reduce last week’s rates in an effort to foster market share when buying a home during the celebration period.
The reason why lenders are interested in growth is that the corporate investment cycle has not taken.
“Even today, the utilization of capacity is around 70% and only when moving up to 80% that you get a serious investment.
We see progress beyond green shooting.
For this to collect momentum and become a full resurrection of the investment cycle, we might be a few more months, “Chadha said.
He added that investment was being seen in the Brownfield project and in companies that have gone through change in ownership.
There are also some fresh capacity in renewable energy and electric vehicles.
“We hope that RBI will recognize profitable macro development by increasing its growth estimates, and cutting inflation projections.
However, MPC is expected to maintain the policy level to remain stable, although it can indicate a ‘live’ policy meeting in December,” said Bank Barclays Rahul Bajoria economist.