On growth, the RBI
is in line with the government as growth for next year has been placed at 6 per cent, which means that things will be better for sure relative to FY20, though the H2 will deliver higher growth compared with H1. Monsoon and spending patterns hold the clue for this to work out. Here, the RBI feels the government has done well for boosting consumption, which may not really work out as there is a divided view on this issue. However, their assumption is that the transmission of past cuts is working fine as seen in the weighted average lending rate (WALR) as well as the benchmarking of some retail and SME rates with approved securities. The assumption made is that the budgetary announcements on removal of exemptions will not counter some of these views. This has always been a worry when the Budget had announced the withdrawal of exemptions, especially housing and other savings in the alternative scheme propagated by the government.
The RBI has maintained an accommodative stance, which is good for the market as it rules out rate hikes which seemed possible at one time when inflation was going up (it probably will remain high for January, too). It has also indicated that there is room for further action, which means that during the year there will be some more rate cuts. More importantly, it is also asking for rates on small savings to be lowered as that would amplify the policy effects. The yield on the 10-year paper has come down marginally to 6.48 per cent from an opening of 6.50 per cent indicating a positive response from the market.
Madan Sabnavis is chief economist at CARE Ratings. Views are personal
Disclaimer: Views expressed are personal. They do not reflect the view/s of Business Standard.