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Below are Views on Monetary Policy  by Churchil Bhatt, EVP Debt Fund Manager, Kotak Mahindra Life Insurance Company Limited

“Yet again, this time to market’s surprise, the MPC kept the key policy rates unchanged in Feb22 meeting. The stance of the policy too remains accommodative in order to bolster durable and broad-based growth recovery. The MPC attributed recent rise in headline inflation primarily to base effect and drew comfort on that front with a view of softening food prices going forward. In spite of recent rise in crude oil prices, MPC expects FY23 headline inflation to average at 4.5%. The RBI has also communicated its intent to normalize inter-bank liquidity framework by re-introducing variable rate repos (VRR) in addition to variable rate reverse repos (VRRR). Going forward RBI may conduct longer tenor liquidity operations in addition to ongoing 14 Day Tenor operations, which remain the primary liquidity management tool. The dovishness of the policy has taken bond markets by surprise and hints at a delayed onset of gradual monetary tightening compared to market expectations. While policy normalization remains inevitable, the implied promise of a calibrated and guided approach by RBI, is likely to ensure an orderly evolution of yield curve in spite of a large government borrowing program.”

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