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Below is perspective on RBI MPC Policy by Mr. Nikhil Gupta, Chief Economist at Motilal Oswal Financial Services Ltd.

RBI policy seems more relaxed than expected

-- As against the general market expectations of a change in communication towards imminent normalization of monetary policy (incl hike in reverse repp rate), RBI sounded more dovish and maintained its commitment to a gradual evolution.

 -- RBI retained its FY22 GDP growth forecast at 9.5% (higher than 8.7%/9.2% our/market forecast) but lowered inflation projection from to 5.3% for FY22 (similar to our/market forecast) v/s 5.7% earlier.

 -- Finally, as liquidity surplus has widened sharply recently, the RBI announced two steps to absorb liquidity: 1) End of G-SAP operations (or course subject to change), 2) Fortnight conduct of 14-day VRRR starting with ₹4t today to ₹6t in the first week of Dec'21. The liquidity absorption with these operations would be ₹2-3t, implying that large liquidity surpluses will remain in the first week of Dec'21 as well.

 Overall, the monetary policy seems more dovish that general expectations but in-line with our forecasts. Weak growth should keep RBI go more easy on normalization, even if some EMs have already hiked (based on their economic position).

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