Indian market gained momentum after the MPC kept rates stable at 5.15 percent on expected lines on Thursday, but incentivizing credit flow to certain stressed sectors like Auto, housing and MSMEs, by exempting them from CRR on incremental credit to these sectors till July 2020 boosted sentiment.
The S&P BSE Sensex rose for the fourth consecutive day in a row while Nifty50 reclaimed crucial 50-Days Moving Average placed at 12,117. Rate sensitive stocks rallied on ease in liquidity measure introduced by the govt. and possibility of lower rates in the future.
“The RBI took off from where the government left off and has maintained its accommodative bias as a clear sign that rates can go lower once inflation is brought under control,”.
Key Policy decisions:
• Repo rate maintained at 5.15%. Stance remains “accommodative”, and reverse repo rate remains at 4.9% and MSF at 5.4%
• Next Monetary Policy Committee meeting is on March 31, April 1, and April 3, 2020
Loans to medium enterprises will now be externally benchmarked Formation of SROs (Self-Regulatory Body) for digital payment systems
FY2021 GDP growth estimate at 6%
In terms of inflation estimates, RBI expects 4QFY20 CPI inflation at 6.5%, and 1HFY21 inflation at 5.4-5.0%
Experts feel that the RBI has delivered positively towards growth and credit without deviating from the inflation targeting framework.
“While the policy suggests that there is space for further rate action, a cut in the April policy would hinge on trends in food inflation. A 25 bps rate cut in the next 6 months is possible. We expect the RBI stance to remain liquidity accommodative,”.