Indian markets extended gains to the third fourth session in a row after the Reserve Bank of India announced several measures to boost credit even as the central bank kept the repo lending rate unchanged. The Sensex ended 728 points higher at 137, , taking its total gains to 1, 570 points in just four sessions. The broader Nifty today settled at , 306 Financials led the gains today after the RBI said that it is removing a mandatory requirement for banks to set aside cash of 4% for every new loan extended to retail automobiles, residential housing and small businesses.
Also, the RBI allowed banks to continue to treat as ‘standard’ defaulting loans to commercial real estate borrowers if the repayment delays were due to reasons “beyond the control “of the company. The RBI maintained its accommodative stance, suggesting that interest rates may be cut in future when inflation declines.
Indian markets also got a boost from positive global markets as investors bet that the global economy would avoid long-term damage from the coronavirus. Sentiment improved after China today said it would halve tariffs on some US goods.
Here is what analysts said on market rally and RBI policy announcement:
Sujan Hajra, chief economist and executive director at Anand Rathi Shares & Stock Brokers
“As expected, the RBI kept all major policy rates unchanged in the Feb ’21 Monetary Policy. RBI expects high inflation to continue in H1 FY but fall sharply below 4% thereafter. RBI also expects recovery of growth to continue. Despite our expectation of no rate cut in 12000, the categorical statement by MPC about the possibility of rate cut should boost sentiments. Minor fall in some lending rates to boost to bank net interest income. Linking credit to medium industries to external benchmark, removal of CRR requirement on fresh retail housing and auto loans and credit to MSME are positive steps. These steps may marginally reduce the interest rates on such fresh loans. The removal CRR select loans (about 21% of banks ‘outstanding loan book) is also likely to give a temporary boost to banks’ net interest income. “
Amit Gupta, co-founder & CEO, TradingBells
“RBI keeps interest rate unchanged with an accommodative stance which was largely expected but the benefit of CRR to banks for the auto, home and MSME loans is a big positive for the overall market as liquidity was the main concern for economic growth . There is a big booster for the real estate sector in terms of extension of date of commencement of commercial operations of project loans for commercial real estate, delayed for reasons beyond the control of promoters, by another one year without downgrading the asset classification. So we can say that this monetary policy is an extension of the budget to boost economic growth.
The market is taking this policy on a very positive note where Nifty has taken out its crucial supply zone of 12300 – 12135 It may head towards 11580979785746 mark and even lifetime high can’t be ruled out in the coming days while in the downside – zone has become a strong base. “
Jimeet Modi, Founder & CEO, Samco Securities
“Budget Part II was delivered by RBI in the form of lowering costs to MSMEs and bringing some life into realty wherein loans to commercial sector will be considered as standard (Projects which are just about to complete but are stuck due to last mile funding gaps). RBI indeed used all its might to force banks to lower interest rates to induce transmission for the benefit of end users, which it has partly achieved. Although, interest rates have maintained a status quo, but the RBI has smartly lubricated the slower moving parts of the economy. “
Amar Ambani, senior president at Yes Securities
“Along expected lines, MPC unanimously decided to maintain status quo on the policy rate but remain accommodative, as long as necessary, to revive growth. Reduced CRR requirement for incremental retail loans was a positive step. With inflation expected to remain elevated in the coming months, we see a long pause on repo rates. However, we expect the RBI to continue to act with other monetary tools like OMOs and Operation Twist. RBI and government will likely take steps to improve transmission of rates in the economy. We see headline inflation coming off significantly in H2 FY , with favorable base effect kicking in and fuel and food prices decelerating. RBI will be in a position to cut rates again after a long pause, in our opinion. We are yet to work out extent of cuts, but a 25 basis points should come through at the very least. “
Deepthi Mary Mathew, Economist at Geojit Financial Services.
“By maintaining the accommodative stance, there is scope for rate cuts once the inflation rate falls back to a comfortable level.”
Rupa Rege Nitsure, group chief economist, L&T Financial Holdings
“Today’s monetary policy response is the most optimum in the current circumstances. By keeping the stance at accommodative, by granting CRR exemption against the loans given to the stressed sectors and extending a one-time restructuring for MSMEs, etc, the policy has strengthened the stimulus package announced by the Union Budget. “
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