Fixed Income House View - September 2021 by Tata Mutual Fund
RBI OBJECTIVES AND ACTIONS
RBI OBJECTIVES
* RBI Governor has reiterated he will be patient and want growth to be durable and sustainable before he starts normalizing policy rates.
* RBI signaled its intention to ensure orderly evolution of the G-Sec curve & reduce volatility to ensure a stable rate structure through measures such as OMOs, G-SAP and Operations Twist.
* RBI has time and again made the statement of yield curve being a public good as lending by market participants through bonds/ bank loans are at a spread to the relevant G Sec yield.
RBI ACTIONS
* In the Monetary Policy Committee Announcements in early August, policy rates remained unchanged, and accommodative stance was maintained, albeit not unanimously (5-1 vote).
* In the first auction of August, RBI did not accept any bids for 10-year benchmark paper signaling to the markets that the RBI would deploy various methods to ensure that the yields follow an orderly evolution.
* In mid-August, the first increased amount VRR (Rs.2.5 lakh crores) got conducted which received huge bids over Rs.4 lakh crores resulting in cut off at 3.42% yield.
* The Quantum of liquidity absorption in variable rate repo auctions held fortnightly, is to be gradually increased from Rs.2 lakh crores to Rs.4 lac crores by end of September 2021.
* GSAP (Government Securities Acquisition Program) auction acceptance of Rs.25,000 crores across tenure announcement made sure following G-Sec auction went smoothly.
RBI ACTIONS AND SYSTEM LIQUIDITY
* Economic data is expected to sequential improve in the coming months allowing for partial withdrawal of excess liquidity in the system.
* Going ahead from here will be ample liquidity available in system and the trajectory of CPI inflation which is expected to move down in the coming months.
RBI POLICY ACTIONS
* RBI cut its headline policy rates significantly in May-2020 to provide liquidity to banks to boost lending and encourage economic growth during the pandemic
* RBI is expected to continue to re- iterate its accommodative monetary policy stance. As against pre phase II expectations of rate hikes staring Sept – Dec 2021, we now expect RBI to stay on hold for this Calendar Year.
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