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Below the RBI Monetary Policy Views by Mr. Amar Ambani, Executive Director, Yes Securities

“MPC maintained a status quo on the stance and the policy rates, in line with the consensus. However, the voting pattern of the MPC members could be construed as a little dovish, with one of the members voting for a 25-basis point rate cut and a change in stance. We believe a change in stance will take place soon, given that the government’s fiscal rectitude offers space for the MPC to shift the stance from “Withdrawal of Liquidity” to “Neutral”.

Change in stance is also warranted, given a durable deficit in the banking system, and this will likely be sustained, as cash in circulation increases ahead of the General elections. Nevertheless, the central bank conveyed flexibility in liquidity management, opting for a mix of tools to keep the liquidity deficit lower and overnight rates close to the repo rate. This is tantamount to a “Neutral Stance”. RBI elaborated that the status quo on the stance should be in context with the inflation target of 4% and policy transmission. Given the fact that inflation is projected to average 4.5% in FY25, we see RBI on the cusp of changing its stance in April, followed by a rate cut in June, which will give time to the RBI in terms of synchronizing with the expectations of rate cuts by various Global central banks.”

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