Quote on RBI Monetary Policy by Siddarth Bhamre, Religare Broking Ltd.
Below is quote on Monetary Policy by Siddarth Bhamre, Research Head, Religare Broking Ltd.
RBI has a tough job in hand of inflation management but at the same time not to hamper growth which is barely above pre-pandemic level as per the Governor. As the environment still remains uncertain RBI has rightly not spent its ammunition and has kept Repo rate unchanged at 4%. However to squeeze out excess liquidity from the system it has introduced Standing Deposit Facility for banks at 3.75% instead of raising reverse repo rate. This gives RBI flexibility to manage liquidity in this challenging environment.
Despite no change in interest rates, 10 year bond yield shot up by 10bps post the announcement and went above 7.00% mark first time since June 2019. This indicates, market believes that RBI too is aligning itself towards higher interest rates going forward despite maintaining ‘accommodative’ stance as of now. There has been an uptick in bank deposit rates in recent past though not across, current action and commentary by RBI may lead others to follow as central bank works towards removing excess liquidity from the system.
For us the most important take away from the policy is that RBI has kept its ammunition intact and is well prepared to safeguard the Indian economy from any external shocks. It will be important to note that if the global situation stabilizes and commodity basket cools off, the signs of which are visible anyway, Indian economy will be very well poised to be on a higher growth trajectory as RBI has done a fine job to manage liquidity through other instruments instead of raising interest rates.
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