RBI commentary on growth, inflation and the moratorium will be interesting to watch

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By Puneet Sikka

GossipMantri.com – The RBI MPC policy meeting has been delayed for a week this time and will end today. While the RBI is expected to remain stable at 4%, this will be the commentary that will be the most interesting aspect of this meeting. RBI’s outlook for GDP growth and inflation as well as its views on the moratorium on lending may have a big impact on Indian markets () today.

The RBI has already cut interest rates by 115 basis points since the start of the COVID-19 pandemic in March. However, August headline inflation of 6.69% prevented the RBI from cutting rates at the last meeting. Inflation continues to remain stubbornly high, which has handcuffed RBI’s hands to further cut interest rates despite the 23.9% drop in GDP in the last quarter.

RBI has not provided India’s growth outlook since February of this year, and in all likelihood it will provide the outlook today. The World Bank now expects India’s economy to contract 9.6% in fiscal 2021, and RBI could also come up with a similar figure.

RBI’s views on the moratorium will also be closely watched. The Supreme Court recently announced its decision to waive interest payments on loans as part of the COVID-19 support plan. Although the government will bear the brunt of the interest payment exemptions, the banks have been unhappy with the move because it takes a long time to get the money from the government. Banks also fear that such waivers will spoil the lending culture in India as they will encourage borrowers, who are otherwise able to repay the loans, to apply for waivers.

RBI could also talk about the “bad bank” idea, which was conceptualized to buy bad debts from financial institutions in India and then work on resolving those loans. This idea is gaining more prominence now after the sharp rise in NPAs on the bank’s balance sheets due to the economic disruption caused by the pandemic.

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