MPC Decision On Expected Lines, Say Industry Experts

There were no surprises at the MPC Policy Meet this time around with most of the members deciding to keep the policy rates on hold.

According to Ram Raheja, Director at S Raheja Realty the decision to maintain the same repo rate and reverse repo rate by the RBI is in line with expectations which will act as a catalyst for economic growth.

"The MPC meeting took place at a time when the country is coping with high inflation, despite the fact that the rate has declined from its peak in June 2021, when it was above 6%. However, the economy grew at a record pace of 20.1 per cent in the April-June quarter compared to the same period last year, when a nationwide lockdown caused by the Covid-19 outbreak had halted almost all economic operations. The pandemic and lockdown was a silver lining for the real estate sector given it is a safe-haven and tangible asset at the time of crisis.

This led to increased investment and home-buying in the last two years. A low home loan interest rate regime has been greatly instrumental in further stimulating India's real estate sector, especially during the festive season. The sentiment for the real estate sector therefore remains positive and the same is also reflected in the S&P BSE realty index as it continues upward movement," he stated.

According to Madhavi Arora, Lead Economist, Emkay Global Financial Services, the MPC expectedly kept the key rates unchanged unanimously and reiterated its accommodative stance both on rates and liquidity.

"However, Prof Jayanth Varma's possible dissent on continuation of accommodative stance for foreseeable future continues to keep MPC in split state. There were no material changes in growth and inflation outlook in near term. The focus was on communication on liquidity management key amid evolving market risks. As expected, the RBI did not opt for a reverse repo hike, and the policy is well used as a lever to prepare markets for a gradualist approach toward normalization through both communication and action," she stated.

According to her there was a missed opportunity on the SDF front. "The overnight liquidity management CY22 onwards will happen through the auction route, making fixed overnight reverse repo irrelevant and thus making the Reverse repo floating. While this is welcome as far as liquidity repricing is concerned, we believe that SDF as a policy tool at the margin could have tried in this policy. The quantum of 14-day VRRRs for December calendar has been increased - going to Rs 7.5tn by end-Dec'21, while the governor stated higher tenor of 28-day or quantum would be used as per the need of the system. RBI to opt for gradual transition: In all, RBI will likely tread cautiously on market preparation.

We do not rule out introduction of SDF as a tool at lower bound next year as Reverse repo becomes floating. In our view, the introduction of uncollateralized SDF could significantly enhance the central bank's sterilization capacity, especially as the liquidity deluge dilemma will continue in the coming months as well. The journey from current Rs8.5tn+ system liquidity to a pre-Covid Rs 2tn+ will be a long-drawn one, which could push RBI to explore new tools to manage durable liquidity/any idiosyncrasies amid collateral constraints under VRRRs," she observed.