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Below are Views on RBI Monetary Policy by Mr. Amar Ambani, Senior President and Head of Research – Institutional Equities, YES SECURITIES.

RBI unanimously and as expected, voted to keep repo rates unchanged and stuck with an accommodative monetary policy. The Central bank remains of the view that any pre-emptive policy normalization could jeopardize growth recovery.  RBI acknowledges inflationary pressure, but cites them as transitory, manifested by some moderation in core inflation. On government borrowing costs, RBI is conceding to the recent rise in yields and has termed it as orderly evolution. The Central bank will persist with its OMO in secondary markets to further anchor the yield expectations.

We infer that RBI is likely to stand put on the Repo rate till the end of this fiscal year, as the endeavor to stabilize growth will be a long-drawn process, given the threat of evolving COVID strains.  In case, growth stabilizes later this year, the process of policy normalization will initially begin with a hike in reverse repo, rather than the repo rate.

Extension of On Tap TLTRO - On Tap TLTRO extended by 3 months to 31st December 2021.

Extension of MSF relaxation - Banks can avail the MSF relaxation for 3 more months till 31st December 2021.

Impact of TLTRO and MSF relaxation extension: RBI’s intention is to keep liquidity conditions benign that is, in general, supportive for banking business activity and would also prevent losses on the investment book due to any undue rise in interest rates.

Change from LIBOR to Alternative Reference Rate – (1) Banks will be allowed to extended export credit based on any other widely accepted Alternative Reference Rate. (2) Change from LIBOR to Alternative Reference Rate will not be treated as restructuring.

These steps ensure smooth transition for banks away from the LIBOR regime.

Resolution framework / Restructuring 1.0 - Recognizing the adverse impact of the second Covid wave, the target date for meeting the sector-specific thresholds for the 4 specified operational parameters stands extended to 1st October 2022 i.e. by 6 months.

It gives some more breathing space to banks in terms of successfully carrying out restructuring and reduces, ceteris paribus, chances of restructured wholesale accounts from slipping into NPA category.

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