RBI’s persistence with accommodative stance warranted: Sanyal

Kolkata, April 8 : Against the prevailing complex economic backdrop, the RBI’s decision to continue with its accommodative stance while focusing on the gradual withdrawal of accommodation was warranted, opined Siddhartha Sanyal, Chief Economist and Head of Research, Bandhan Bank, on the apex bank’s monetary policy announced on Friday. “At a time when inflation is rising and geopolitical tensions are leading to volatility in global markets and keeping energy and commodity prices elevated, the RBI has been bold and upfront in recognising the risks to growth and inflation in FY23,” he said adding, “the GDP growth projection for FY23 has been reduced by 60 bps (basis points) and inflation estimate has been raised by a sharp 120 bps.” “It is important to note that monetary policy typically takes effect with a lag. As per the RBI’s latest projection, inflation is estimated to average at around 5.25% in H2FY23, as against the earlier expectation of around 4%. While this doesn’t call for a knee-jerk reaction at the moment, if the inflation projection for H2FY23 needs to be revised upwards, rather than downwards, going forward, it might lead the central bank to raise the Repo Rate earlier than what was earlier expected,” Sanyal stated. “While the Reverse Repo rate was left unchanged today, introduction of SDF (Standing Deposit Facility) at a rate of 3.75%, effectively moves the floor of the LAF (Liquidity Adjustment Facility) corridor higher. However, this shouldn’t lead to any fresh immediate upward pressure on near term rates as the latter has already settled above the SDF rate,’ he said. SJC KK SSP ARN

Leave a Comment