RBI raises inflation forecast but holds rates – Times of India
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MUMBAI: Reserve Bank of India (RBI) governor Shaktikanta Das demonstrated that the central bank is prepared to do whatever it takes to nurture the `nascent and hesitant’ recovery by holding policy rates even as inflation is expected to head precariously close to tolerance levels.
The implication for borrowers is that there is not much scope for interest rates to come down barring some pass-through of earlier cuts by lenders. RBI has cut the repo rate by 250 basis points (1%=100bps) since February 2019 and banks have responded with a 217 bps cumulative decline in their weighted average lending rate.
Pointing out that indicators of consumption, investment and external demand are gaining traction, Das was optimistic about recovery and retained his forecast for FY22 at 9.5%. This would consist of 21.4%in Q1; 7.3%in Q2; 6.3% in Q3; and 6.1%in Q4 of 2021-22. Real GDP growth for Q1:2022-23 is projected at 17.2%.
Inflation forecast has been raised to 5.7% from 5.1% earlier: 5.9%in Q2; 5.3% in Q3; and 5.8%in Q4 of 2021-22.
Das explained the rationale for looking through inflationary pressures pointing out that these were transitory and that policy normalisation now would be pre-emptive. “With adequate pandemic protocols and ramp-up in the vaccination rate, we should be able to tide over a third wave, if it occurs,” said Das.
Announcing the monetary policy committee (MPC) decision after its bi-monthly review, Das said that members were unanimous on retaining the repo rate at 4%. However, one member voted against the proposal to continue with the `accommodative’ stance.
In its development measures, the RBI extended by three months, upto December 2021, a scheme to provide cheap refinance to banks that on-lend to corporates. The Targeted Long Term Repo Operations was announced in the wake of the pandemic and already extended once by six months.
Given the impact of the second wave, RBI has relaxed the norms for companies that were allowed to get their loans restructured. These companies were required to meet ed to meet sector-specific thresholds in five financial parameters – total debt to EBIDTA ratio, current ratio, debt service coverage ratio and average debt service coverage ratio, by March 31, 2022. They now have until October 2022 to meet the parameters.
The implication for borrowers is that there is not much scope for interest rates to come down barring some pass-through of earlier cuts by lenders. RBI has cut the repo rate by 250 basis points (1%=100bps) since February 2019 and banks have responded with a 217 bps cumulative decline in their weighted average lending rate.
Pointing out that indicators of consumption, investment and external demand are gaining traction, Das was optimistic about recovery and retained his forecast for FY22 at 9.5%. This would consist of 21.4%in Q1; 7.3%in Q2; 6.3% in Q3; and 6.1%in Q4 of 2021-22. Real GDP growth for Q1:2022-23 is projected at 17.2%.
Inflation forecast has been raised to 5.7% from 5.1% earlier: 5.9%in Q2; 5.3% in Q3; and 5.8%in Q4 of 2021-22.
Das explained the rationale for looking through inflationary pressures pointing out that these were transitory and that policy normalisation now would be pre-emptive. “With adequate pandemic protocols and ramp-up in the vaccination rate, we should be able to tide over a third wave, if it occurs,” said Das.
Announcing the monetary policy committee (MPC) decision after its bi-monthly review, Das said that members were unanimous on retaining the repo rate at 4%. However, one member voted against the proposal to continue with the `accommodative’ stance.
In its development measures, the RBI extended by three months, upto December 2021, a scheme to provide cheap refinance to banks that on-lend to corporates. The Targeted Long Term Repo Operations was announced in the wake of the pandemic and already extended once by six months.
Given the impact of the second wave, RBI has relaxed the norms for companies that were allowed to get their loans restructured. These companies were required to meet ed to meet sector-specific thresholds in five financial parameters – total debt to EBIDTA ratio, current ratio, debt service coverage ratio and average debt service coverage ratio, by March 31, 2022. They now have until October 2022 to meet the parameters.
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