While the rating agency downgraded India’s sovereign rating, BofA Securities’ economists see the present downturn as cyclical rather than structural; say fiscal stimulus is critical for recovery.
Moratorium extended, banks’ group exposure increased to 30%; slew of measures to support economy affected by Covid-19.
The central bank has been quiet on its regular growth and inflation forecasts, citing the highly fluid circumstances, but it has given ample hints in its latest Monetary Policy report.
While directly mum on inflation and growth, the RBI’s latest monetary policy report warns that Covid-19 would impact economic activity in India through lockdowns and slowing global trade and growth.
Despite acknowledging that inflation surged above tolerance level and the economy continued to be weak, the central bank’s MPC sees policy space available for future rate action.
At the last monetary policy meeting of FY20, the central bank kept the interest rate unchanged, with a warning to not read the ‘pause’ continually for its future actions.
Following Saturday’s 987.96-point fall, the S&P BSE Sensex closing at 39,872.31, just 136.78 points higher, on Monday shows that the markets are still unhappy with the Budget.
Notwithstanding headline inflation being at a five-year high of 7.4%, Nomura expects the RBI to extend its pause; but the next policy move is still likely to be a rate cut in Q2 to boost growth.
Net equity investments of mutual funds fell over 55%, while their investments in debt rose over 59% compared to 2018.
The Monetary Policy Committee meeting minutes reveal that its members were bogged down by rising inflation and slowing growth, which could mean status quo going forward.
