Rising global COVID-19 cases will impact capital flows and increase inflation: Ind-Ra


Rising COVID-19 cases around the world have the potential to impact capital flows as well as increase inflation, said India Ratings and Research (Ind-Ra). As a result, the agency said uncertainty over a third wave of COVID-19 has already started showing signs in stock markets.

He pointed out that foreign portfolio investors were the net sellers in Indian markets to the tune of Rs 103 billion in November 2021, while net debt liquidation was Rs 27 billion during the month.

“One of the main reasons for the sale was concerns about global inflationary pressure and the higher risk of COVID-19 in some of the developed economies,” the agency said in its Credit Market Monitoring report.

In addition, the agency said that there could be a negative impact on the company due to successive foreclosure, and in particular when the condition for national growth is still not generalized but the investment cycle shows green shoots.

In terms of capital flows, he noted that the tightening of domestic inflation and a reversal of ultra-accommodative policies in advanced economies have increased the pressure on the Reserve Bank of India (RBI).

The Monetary Policy Committee earlier this month left interest rates unchanged and reiterated that political support was needed to ensure sustainable economic growth.

“However, the RBI has been active through changes in the market microstructure by taking steps to bring money market rates towards the benchmark policy rate rather than the reverse repo rate.”

Therefore, the RBI announced a three-day floating rate reverse repurchase auction, instead of a seven or 14 day auction; the auction saw the banks park Rs 811.60 billion against the notified amount of Rs 2 trillion.

“The closing rate for floating rate repurchase agreements has moved closer to the ‘repo rate’, in line with rising overnight rates and depleting liquidity, while money market rates have increased . “

“Overall, rates have increased by 20 to 50 bps depending on term and credit profile.

In addition, commercial paper issuance by companies in November 2021 remained modest at Rs 727 billion due to an immediate need for funds and timid demand, while issuance by non-banks rose to Rs. 1,616 billion in November 2021 against Rs 292 billion in October. 2021.

“The number of ultra-short-term commercial paper issues has increased; the concentration of issues in the seven-day tranche is largely due to the financing of the initial public offering on the equity market. Easy liquidity had kept yields low across all tranches in November. 2021 “, the report says.

In addition, issuance of “certificates of deposit” (CD) by state banks in the primary market has remained low due to the high liquidity of the banking system and low credit consumption, while issuance by banks private loans increased by 30 billion rupees in November 2021..

“Loan growth has also remained subdued due to the lack of demand for large loans from businesses, while banks have remained cautious in anticipating increased strains on asset quality due to the COVID-19 pandemic and soaring commodity prices. “

(With IANS entries)

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Posted on: Sunday December 26th, 2021, 2:57 PM IST


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