Quote on RBI Monetary Policy meeting by Mr. Jyoti Roy, Angel One Ltd
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Below is quote on RBI Monetary Policy meeting by Mr. Jyoti Roy - DVP- Equity Strategist, Angel One Ltd
The RBI as expected kept the key policy rates unchanged in its fourth bi monthly MPC meeting today and have maintained their accommodative stance. The RBI has maintained their GDP growth forecast at 9.5% for FY22 while the inflation forecast for Q4FY22 stands at 5.8%. While the RBI has maintained their accommodative stance they have started on the path to normalization of liquidity in the system. The RBI has so far infused Rs. 2.37 lakh Cr liquidity into the system as compared to Rs 3.1 lakh Cr in FY21 through open market operations (OMOs), including G-SAP. Looking at current liquidity conditions and improvement in Government finances the RBI has stated that they do not see the need to undertake further G-SAP operations at this point of time. However the RBI stated that they remain ready to undertake G-SAP as and when warranted by liquidity conditions and will also continue to flexibly conduct other liquidity management operations including Operation Twist (OT) and regular open market operations (OMOs).
Moreover the RBI will use variable rate reverse repo (VRRR) as the main instrument for draining out excess liquidity from the markets. The RBI will conduct 14 days VRRR of Rs. 4 lakh Cr. today but will gradually increase the size to Rs. 6.0 lakh Cr. by 3rd Dec’21 while it will also contemplate using 28 days VRRR in conjunction with the 14 days VRRR. All in all the MPC meeting was in line with our and the street’s expectations as the RBI has given a clear roadmap for normalization of liquidity conditions. While we expect the RBI to remain on hold in the next MPC meeting as well, sustained increase in energy prices due to the ongoing energy crisis is the key risk to the RBI's inflation forecast and may force the RBI to raise interest rates in H1CY2022. However, energy prices normalizing over the next few months will give the RBI more elbow room to keep rates at current levels for a longer period of time.
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