RBI MPC Policy: What does central banks accommodative stance mean for markets? Experts decode

For the 10th straight time, the Reserve Bank of India in its bi-monthly monetary policy committee has kept the key benchmark rates unchanged with repo rate at 4 per cent and reverse repo rate at 3.35 per cent. The Indian Central Bank has also continued with its accommodative stance during February policy announcements on Thursday. 

The RBI Governor Shakitkanta Das in his commentary said, “The MPC also decided to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.” 

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Most of the analysts believe that the RBI’s MPC decision keeping a status quo is clear picture that the focus is on the economic growth rather than worries around inflation. The MPC announcements are overall positive for the financial situation of the country and for the domestic markets, they opined. 

Accommodative stance will aid the country to give impetus for further growth in economic situation, Zee Business Managing Editor Anil Singhvi said giving his take on monetary policy announcements. Similarly, we have collated views from different experts that explains what and how exactly this accommodative stance means.  

Expert: Yesha Shah, Head of Equity Research, Samco Securities. 

The central bank appears to believe that the inflation is still transitory with its lower than anticipated inflation forecast for FY23. This runs counter to the global echo and raises few concerns and risks, since there appears to be no easing in crude and commodity prices.  

For the time being, markets will certainly rejoice given that the policy is growth supportive. The unchanged reverse repo also augers well to nurture the credit cycle, which has only recently started picking up, positively impacting banks, NBFCs, HFCs and real estate companies. 

Expert: Mitul Shah, Head of Research at Reliance Securities 

Despite higher commodity prices and record-high crude prices, below 5 per cent inflation expectation in FY23 is cheered by the market. MPC will continue its growth-supportive stance till the time there are signs of a durable recovery.  

Going ahead, we would monitor closely how the Covid wave will pan out and how the inflation trajectory will evolve. We expect overall market sentiment to remain positive, though the market may remain range-bound in the near term due to Fed’s decision on rate hike and FPI outflow. 

Expert: Sonam Srivastava, Founder at Wright Research 

The governor has undoubtedly kept the outlook accommodative and supportive for growth. As a result, the bond yields have fallen, and the bond markets are rallying, leading to market profits for the banks and banking and housing finance companies rallying.  

There is a cheer from the market in all quarters right now, which is a big positive, but with all major global central banks turning neutral from dovish, market participants would closely monitor this move by the RBI to see if they are falling behind the curve. 

Expert: Abhay Agarwal, Founder, and Fund Manager, Piper Serica,  

Clearly, RBI is more focused on protecting the nascent recovery rather than on increasing rates. This will fray a lot of nerves and will cool down the bond yields. The interest rate-sensitive stocks like banks, real estate, and autos will be the biggest beneficiaries.  

Overall, very positive in an environment where rates are rising globally. With the omicron worry also behind us, we expect that reverse taper tantrum will play out in the Indian stock market. 

Expert: Dhiraj Relli, MD & CEO, HDFC Securities. 

Though the intent of the RBI to support the recovery in economy in the face of disruption due to Omicron variant is commendable, economists will now fear whether the RBI will fall behind the curve, having maintained the easy monetary stance longer than most other Central Banks had. 

One hopes that the inflation trajectory will soon come under control and the bet of the RBI pays off. Equity markets may temporarily welcome this decision but will be largely driven by the balance Q3 Corporate results, outcome of state elections and changes in global risk appetite.