Fiscal Fears: RBI to maintain rates, accommodative stance (IANS Poll)

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    By Rohit Vaid
    New Delhi/Mumbai, Feb 4 |
    High fiscal deficit levels along with fears of fanning inflations will deter the Reserve Bank of India (RBI) from administering a dose of lending rate cut during the last monetary policy review of FY21.

    In a poll conducted by IANS, economists and industry experts cited limited headroom for further monetary policy easing along with a wait of full transmission of past rate cuts as a key determinant for a pause in policy easing.

    However, a growth-boosting accommodative stance is expected to be maintained.

    “Despite the fall in retail inflation, the monetary policy committee (MPC) is expected to maintain the current lending rates,” Sunil Kumar Sinha, Principal Economist, India Ratings & Research, told IANS.

    “The MPC has limited head-room for cutting rates and may like to retain the firepower for exigencies. On the other hand, the accommodative stance will continue, since the growth needs support and transmission of the past rate cuts is still playing out.”

    A policy easing, if administered, would have theoretically allowed commercial banks to reduce their lending rates, thereby helping both consumers and the industry get cheaper finance.

    Subsequently, the increased money flow in the hands of the consumers would have helped boost demand, and provided a higher flow of capital investment for the industry on the back of lower cost.

    “Even though the CPI inflation dipped in December 2020, the trajectory remains unpalatable,” said Aditi Nayar, Principal Economist, ICRA.

    “We expect an extended pause for the repo rate, with the stance to be changed to neutral in the August 2021 policy review or later, once there is clarity on the durability of the economic recovery.”

    Last month, official data showed that India’s December retail inflation came within the RBI’s comfort zone.

    “We expect the MPC to continue the pause. The fall in inflation rate was mainly due to fall in food prices,” Brickwork Ratings’ Chief Economic Advisor M. Govinda Rao said.

    “The core inflation rate has not come down.”

    Sequentially, the Consumer Price Index (CPI), which gauges the retail price inflation, rose to 4.59 per cent in December from 6.93 per cent in November.

    The Consumer Food Price Index (CFPI) for last month came in at 3.41 per cent, down from 9.50 per cent in November 2020.

    As per the data, retail inflation level has come back within the limits of the medium-term CPI inflation target of 4 per cent. The target is set within a band of (+/-) 2 per cent.

    “The likelihood of any rate cut is minimal in the near term given the sharply higher fiscal deficit regimen and the risk of continuing inflationary pressures though CPI has cooled down of late,” said Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research.

    The MPC has maintained the repo — or short-term lending — rate for commercial banks at 4 per cent.

    “We believe that the countercyclical fiscal stance is indispensable at the current juncture to sustain demand and mitigate the long-term costs of the crisis,” said Madhavi Arora, Lead Economist, Emkay Global.

    “Monetary policy can complement these efforts, amid its current constraint effective lower bound of policy rates.”

    (Rohit Vaid can be contacted at rohit.v@ians.in)

    Source: IANS

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    Share Market Closing Bell: Nifty ends below 16,100, Sensex falls 303 pts

    Share Market Closing Bell: Nifty ends below 16,100, Sensex falls 303 pts

    Dalal Street found no relief with incessant sell off during the month. Nifty traded on a bearish note and ended at 16025.80 with loss of 99.35 points or 0.62 percent following weak global cues on Wednesday. While Banknifty closed at 34339.50 on the higher side with marginal gain of 49.35 points.

    bhaskarlive market closing

    The weakness in US stocks is playing out globally with signs of higher inflation, which has spoiled investors’ appetite for the Indian market as well. Rising India VIX to 25.28 has led Indices to big intraday swings on both sides. Sectorally maximum sectors closed on the negative side as Nifty IT and Nifty Media sheds more than 3 percent each. While Nifty Financial Services ended on a positive side gaining 0.68 percent.

    In nifty stocks, NTPC, HDFCLIFE, SBILIFE were the top gainers while ASIANPAINT, ADANIPORT and TECHM were the prime laggards. Coming to the OI Data, on the call side highest OI witnessed at 16200 followed by 16300 strike price while on the put side, the highest OI was at 15800 strike price. Technically, Nifty has formed three black crow patterns in the daily chart suggesting bearishness would remain intact. We expect a rise in volatility as well on monthly expiry day.

    Riding against the trend may not be beneficial for short term traders. All major moving averages are lying above 16300 levels. Indicators such as MACD and RSI are still struggling to overcome the oversold zone in the daily time frame. Overall, Nifty is having support at 15800 mark while on the upside 16300 may act as an immediate resistance for monthly expiry. While Banknifty has support around 33500 while resistance is placed at 35200 on the daily chart.

    Om Mehra
    Research Associate
    Choice Broking

    Source: Choice India

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