Views on MPC Statement announced - Oct 9, 2020 - Suman Chowdhury, Acuité Ratings & Research Ltd

"On expected lines, MPC has continued with its pause stance while stating clearly that it will continue with the accommodative approach well into the next financial year given the significant uncertainty on the growth revival trajectory. Although RBI has highlighted some of the emerging green shoots in the economic landscape including a record agricultural output in the current kharif season, it has also for the first time in the current year has projected a GDP contraction of 9.5%. In the context of increased concerns on higher bond yields and higher government borrowings, RBI has given out a strong message that it will manage yields in an aggressive manner through larger OMOs which will also cover SDLs. This along with an expectation of a moderation in inflation over the next few months, is expected to keep 10 yr. gsec yields at sub 6% levels and also facilitate higher borrowings by the states in the near term. Further, significant steps have been taken to ensure liquidity in the financial markets and also the availability of debt to specific sectors with the "on tap TLTRO" of another Rs 1 Lakh Cr upto March 2021. Additionally, several regulatory measures such as tweaks on risk weights for home loans with higher equity contribution, increase of exposure limits to individual retail and small business loans and extension of co-origination models to cover all NBFCs and HFCs will help to incentivise higher lending to retail and SME sectors, thereby pushing the currently low credit growth."

Source : Equity Bulls

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