On the liquidity front, the MPC also unanimously decided to continue with accommodative stance of the monetary, at least till the current financial year, and into next year to revive growth on a durable basis and mitigate the impact of Covid-19. In effect, the RBI
has not withdrawn liquidity support from the markets
which, although unexpected, bode well for the economy despite short-term rates being low.
Amid the expected policy outcome, the RBI
has asked commercial banks to refrain from paying out dividends to shareholders for FY20. The decision makes sense as the outlook with respect to non-performing assets (NPAs) remains uncertain. In this situation, it is better to conserve banks’ capital.Therefore, shareholders won’t mind foregoing their dividends as long as the prices of the shares they hold remain largely intact.
Since the announcements are on the expected line, there aren't either positive or negative surprises for the markets.
The euphoria in the banking space due to no withdrawal of liquidity may die out in a couple of days and bank stocks will go back to their original trajectory. The announcements will not impact the market trajectory in a big way.
That said, the bear camp, or the people who think markets are overvalued, have got more ammunition from the policy statement in terms of higher inflation projections and lower-than-expected GDP growth forecast. For them, predicting the topping out of markets has become easier, and these could eventually become a party pooper.
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