Availability of liquidity will support growth: experts
New Delhi: The RBI's decision to keep the key policy rate unchanged ensures a lower interest rate regime and availability of liquidity to support growth under the current economic situation, even as high inflation remains a risk, financial market experts said on Friday.
The Reserve Bank of India (RBI) on Friday left interest rates unchanged for a third straight meeting as inflation stayed stubbornly high, and said the economy was recuperating fast and would return to positive growth in the current quarter itself. "The policy stance has, as expected continued to focus on reviving growth with the MPC maintaining its accommodative stance. At the same time, the statement reinforces the requirement of supply side actions to break the current inflationary spiral.
"However, not upsetting the status quo probably has been the theme with regards to liquidity management," said Rajeev Radhakrishnan, Head of Fixed Income, SBI Mutual Fund. The Monetary Policy Committee (MPC) of RBI expects inflation to remain elevated, barring some transient relief in winter months and this has constrained monetary policy at the current juncture from "using the space available to act in support of growth", RBI Governor Shaktikanta Das said unveiling the policy review.
At the same time, the signs of recovery are far from being broadbased and are dependent on sustained policy support, he added. Aditi Nayar, Principal Economist, ICRA said,"In our view, the adverse outlook for inflation, the concern that price pressures are spreading, and the strong commentary around monitoring threats to price stability to anchor macroeconomic and financial stability, indicate that the room for further rate cuts is negligible.
However, an extended pause will mean that rates will remain low for a long period of time." She said measures aimed at funnelling liquidity toward credit, and the signals that liquidity will not be withdrawn hurriedly, will serve well to boost sentiment, and cap yields. Abheek Barua, Chief Economist, HDFC Bank termed as "puzzling" the absence of any major liquidity absorption measures in the midst of a prolonged inflationary episode and upward revision of both growth and inflation forecasts.