India Ratings and Research (Ind-Ra) expects interest rates to stabilise at the current level and Indian currency to undergo structural changes in the coming months.
The agency believes that culmination of rising growth-inflation dichotomy and sustained improvement in balance of payment account will become crucial determinants for ensuring ultra-loose monetary policy conditions by the Reserve Bank of India (RBI).
Ind-Ra opines the near-term condition in the credit market will be cautiously optimistic.
During the COVID-19 outbreak, abundant liquidity in debt capital markets has played a major role in alleviating excessive risk aversion sentiments and common funding challenges prominent during the crisis time.
The RBI has taken various steps to encourage banks to lend to entities in need and mitigate the impact of cash losses during the lockdown. This was further aided by the regulatory forbearances and targeted fiscal support.
All these have ensured capital flows to a large section of borrowers and lenders at a cheaper cost. Though the access to capital and bank credit was largely concentrated among few top-rated borrowers during the initial months, the access to capital for lower-rated borrowers has improved recently.
The agency believes that debt capital markets will remain conducive for AAA and AA category borrowers. However, the damages in the economy due to the pandemic is not something to go away anytime soon. Therefore, it needs to be monitored and examined.
A fragile and two-track recovery both at the macro and micro levels will keep financial condition unstable. In this regard, the agency believes that benign monetary policy conditions could only act as an enabling factor.
For broad-based recovery on a sustained basis, a combination of massive private and complementary public spending is necessary, said Ind-Ra.
( With inputs from ANI )
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