India Inc and experts on Friday said the RBI's decision to hold interest rates will support economic recovery in the aftermath of the COVID-19 pandemic and that they expect the central bank to maintain an accomodative stance in the nearfuture.

The Reserve Bank of India (RBI) on Friday left interest rates unchanged for a third straight meeting as inflation stayed stubbornly high, and said the economy was recuperating fast and would return to positive growth in the current quarter itself.

The benchmark repurchase rate will be maintained at 4 per cent, RBI Governor Shaktikanta Das said.

The six-member Monetary Policy Committee (MPC) retained its accommodative stance, signalling its intentions to cut interest rates whenever the situation eases.

A spike in consumer prices forced RBI to pause after cutting rates by 115 basis points this year.

"There has been a substantial upgrade to the overall growth forecast for the second half of the current fiscal. This is encouraging but given the stress the economy had faced on account of COVID-19, we anticipate that policy support, both from the RBI and the government, will be required well into the next year," Ficci President Sangita Reddy said.

Chandrajit Banerjee, Director General, CIIsaid it has been the right decision by RBI, given that adequate thrust on nurturing the growth impulse is required.

"Industry is also buoyed by RBI's willingness to use all instruments at its disposal to ensure availability of adequate liquidity in the financial markets. This is a necessary pre-requisite for fostering the growth recovery," he added.

''Given the inflationary challenges, it is no surprise that the RBI-MPC has kept the policy repo rate unchanged at four per cent. However, we must applaud the MPC for staying on course with regard to accommodative interest rate stance," Assocham Secretary General Deepak Sood said.

The growth projections by RBI, such as positive growth in second half of FY2021 and revised real GDP contraction at 7.5 per cent, are inspiring and will build confidence in the economic and business activities going forward, PHDCCI President Sanjay Aggarwal said.

"Going ahead, we expect accommodative stance to continue at least in next financial year and there is further cut in repo rate if inflation comes down," he added.

Nitin Sharma, Director Research Fidelity International Indiasaid the MPC's pronouncement on continuing the accommodative stance for as long as needed and observation of an improving recovery path will give comfort to markets.

Ashish Shanker, Deputy MD and Head of Investment, Motilal Oswal Private Wealth Management said an accommodative liquidity stance will ensure access to liquidity will not be a challenge and the ongoing recovery continues to gather steam.

Ramesh Nair, CEO & Country Head (India), JLL, said the RBI'sdecision augurs well for the economy.

Mayur Dwivedi, Head- Strategy, M&A, Investors Relations at Religare Enterprises, said the RBI's decision underlines the central bank's focus on reviving growth in the aftermath of COVID-19 pandemic.

The central bank, which had previously expected the economy to shrink 9.5 per cent in the year to March, revised its forecast after a shallower-than-expected decline in the gross domestic product (GDP) in the July-September quarter.

Das said high frequency indicators point to a recovery gaining traction, with double-digit growth in passenger vehicles and motorcycle sales, railway freight traffic, and electricity consumption in October.

The GDP, he said, will grow by 0.1 per cent in December quarter and by 0.7 per cent in the following three months. Overall, the 2020-21 fiscal will end with a 7.5 per cent de-growth.


Please note the article was originally published in The Economic Times, The Financial Express, Business Standard, Outlook India, CNBC TV18, Today News Online, Moneycontrol in December 2020.

The opinions expressed are author's own. Fidelity International is not responsible for the author's opinions.