However, there is assurance given that there will never be an issue on liquidity through various measures. The on-tap TLTRO funds will now be expanded to the 26 sectors identified by the Kamath Committee, as also healthcare. This brings it in alignment with the government’s move to extend the Emergency Credit Line Guarantee Scheme (ELCGS) coverage to these sectors in November. Therefore, the system need not really worry about liquidity.
These measures will actually ensure that while basic regulatory rates have not changed the market yields on bonds will remain stable and the infusion of liquidity as and when required will ensure that they are range bound. This benefit will percolate to corporate bonds, too, as pointed out by the RBI that spreads over G-Secs has returned to the pre-pandemic levels and hence in general borrowing costs should be stable.
The RBI’s take on growth is interesting as it is looking at marginal positive growth in Q3 and Q4. This is based on faster-than-expected recoveries witnessed in several sectors including services. While Q4 forecast is more or less in lines with the market, the Q3 forecast is unique even though growth is to be just 0.1 per cent. This will imply that the RBI expects sustenance of demand in December, too. If this does happen, it can be said that growth in Q4 could be even higher. The overall forecast of -7.5 per cent for the year appears to be in line with CARE Ratings’ estimate of -7.5-7.7 per cent.
The curious message we get form the statement is that inflation is no longer the only target and we are back to the old days when both growth and inflation were targets for monetary policy. There is, hence, no talk of raising rates even though inflation is going to be well above the 4 per cent mark through the rest of the year. While this could be due to unusual conditions this year, it will need to be seen whether this stance continues into FY22.
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