Mehta concerned about underlying threat of the pandemic
The status quo in key rates by Reserve Bank of India has been welcomed by exporters, industries and banking sector, especially as the economy continues to recover from uncertainties caused by the pandemic and other unexpected headwinds.
RBI kept the repo rate unchanged at 4% for the 10th time in a row and maintained the reverse repo rate at 3.35%.
Commenting on the RBI Monetary Policy Statement on 10 Feb 2022, FIEO President Dr. A Sakthivel said that the Central Bank has struck a nice balance between growth and inflation and evaluating the two, has not tinkered with the rates.
At the same time, the extension of the Emergency Credit Linked Guarantee Scheme (ECLGS) in the Budget 2022-23 will augment further the flow of credit to the exports sector, he said.
He noted that RBI has also acknowledged the challenges of containers and labour shortage and high freight rate, which had led to a revision in the trade growth projection for 2022-23 at 6%.
He pointed out that the demand side of Indian exports is extremely encouraging and the export sector is all set to repeat its spectacular performance in the next financial year as well despite logistics constraints.
Dr Sakthivel hoped that since the countries globally are now opening up, the logistics issues will be taken care of leading to a reduction in the cycle of exports.
“At the same time, we should look into setting up container manufacturing in our own country to add another feather in our “Atma Nirbhar” strategy particularly as coastal manufacturing in the country is also gaining traction.”
The FIEO Chief said that while the current value of Rupee is providing support to exports, “we have to be watchful as recent capital outflows in many emerging economies have resulted in deprecation of their currencies significantly making them much more competitive.”
Commenting on the monetary policy announced, FICCI President Sanjiv Mehta said, “The Reserve Bank of India continued maintaining an accommodative stance reiterating that protecting lives and livelihoods remains a clear priority amidst the current circumstances. Even as the Governor indicated steps towards a progressive return to normalcy in liquidity management, the emphasis laid on warranting policy support until a broad-based durable recovery finds its way is encouraging.”
“Uncertainty continues to remain on fore on account of global and domestic factors with the underlying threat of the pandemic still not fully mitigated. The Central Bank has put across a GDP growth estimate of 7.8% for the year 2022-23. The RBI has also assessed some improvement in capacity utilization levels in its surveys. However, the overall demand in the economy remains weak and is yet to touch pre-pandemic levels. In the last Union Budget, the government has given a lot of focus on CAPEX-led growth in the economy.
“This would help boost demand, improve capacity utilization levels, and generate more employment, which in turn would lead to greater demand. We need such a virtuous growth cycle and hope that RBI will work in close coordination with the government to ensure this,” said Mehta.
“Besides, we are happy to note the extension of the on-tap liquidity window for emergency health care services and contact intensive services till 30 June 2022, from 31 March 2022, as announced earlier. The contact-based services have been most severely hit by the recurring waves of the pandemic making a move to sustained recovery extremely difficult for the sector,” added Mehta.
“Also, the enhancement of the cap under e-RUPI vouchers issued by the Central government and State governments to Rs.100,000 per voucher from Rs.10,000 indicates a continued emphasis on digitization to assure better governance,” he added.
“Today’s MPC decision to hold rates is a testament to RBI’s pro-growth stance. Coupled with last week’s expansionary Union Budget, RBI’s decision to remain accommodative for as long as needed, augurs well for India’s economic recovery and also for its journey towards becoming a US$5 trillion economy. The decision to hold rates will cap borrowing costs and will also aid credit delivery,” added Zarin Daruwala, Cluster CEO, India and South Asia markets (Bangladesh, Nepal and Sri Lanka), Standard Chartered Bank.
The extension of liquidity facilities for healthcare services and other contact intensive sectors will provide much-needed relief for these crucial sectors. The enhancement of the Voluntary Retention Route (VRR) limit for FPIs from Rs.1.5 lakh crore to Rs.2.5 lakh crore should attract sustainable flows into the debt segment.
Opening up of the local currency Credit Default Swap (CDS) market and allowing domestic banks to participate in the Foreign Currency Settled-Overnight Indexed Swap (FCS-OIS) market are positive steps towards a more vibrant derivatives market and will provide new hedging solutions for onshore participants.
The augmentation of the NACH limit from Rs.1 crore to Rs.3 crore should improve operational flexibility for the trade receivables discounting system (TReDS) platform,” said Daruwala. fiinews.com
