RBI Policy: Will central bank's move spur consumer demand?
1 min read 09 Oct 2020, 11:31 AM ISTRBI says consumer demand, which has remained slack in discretionary categories may get some fillip after inflation tapers off in the next three monthsRBI governor Shaktikanta Das says agriculture, consumer goods, power and pharma sectors will see quicker recovery
PremiumMUMBAI: Consumer demand that has remained slack in discretionary categories, specifically in urban regions, may get some fillip after inflation tapers off, which is expected in the next three months, according to the RBI. India’s inflation target is 4%. However, since the lockdown, inflation has remained above the target rate, at 6%.
"The mood is shifting from fear and despair to hope. Inflation will ease closer to target by Q4FY21. GDP growth may turn positive by Q4. India is likely to see speedy recovery with variations across sectors. Agriculture, consumer goods, power, and pharma sectors to see quicker recovery," said the RBI Governor, Shaktikanta Das today.
After six months of coping with the vagaries of covid-19 related demand and supply, FMGC companies have now been able to restore distribution supplies completely to the pre-covid levels.
However, demand has not picked up as expected. Though, FMCG companies launched new products in health & hygiene space, driving their growth in newer categories, some discretionary categories like skin care, cosmetics, ice-creams and juices continue to see subdued demand conditions.
Last month, Sanjiv Mehta, the Chairman and Managing Director (CMD) of Hindustan Unilever Ltd had during the All India Management Association event said that India would have to be aggressive with spending to boost consumption in cities before its too late.
Consumer major HUL and Britannia Industries make nearly 60% of their revenues from urban consumers.
According to Nielsen data, metro cities are still struggling to return to pre-Covid level demand and witnessing 10-15% lower sales while rural growth was 17%, 4% in July, August, respectively, compared to pre-Covid levels.
"Though the policy rate remains unchanged, this is a very dovish policy announcement. Rationalization of risk weightage of home finance companies is an innovative initiative which will bring home loan rates down. This will be a boost to the real estate sector & housing companies," said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, adding that the proposed OMOs for state development loans will boost liquidity for them
"This will be beneficial for funds starved states. The new MPC's first policy announcement is a fine example of being dovish without cutting rates. The positive response of the bond market with sharp cut in yields is a reflection of the success of the policy," he added.
