Status quo expected on Wednesday, but guidance will hold the key for bond market
Rates offered at par or lower than RBI's repo rate
RBI will need to do a tough balancing act
RBI keeps repo rate unchanged at 4%, pegs FY22 GDP growth at 10.5%
The Economic Survey, last week, had suggested that there should be one more round of AQR of banks after the Covid-related forbearance is over
Despite the fiscal activism in the Budget, the MPC stated that the recovery was yet to gain firm traction and needed continued policy support
The six-member MPC kept interest rates on hold, but said it will keep its stance accommodative to support the government's huge borrowing programme
GDP projection revised upwards, but lower than Eco Survey's
HNI participation may be gradual; mutual funds see little impact on fund flows
RBI has done exceptionally well in managing government's extended borrowing this year when fiscal deficit has shot-up to 9.5 per cent of GDP
This is the fourth time in a row that MPC has decided to keep the policy rate unchanged at 4%. The central bank had slashed the repo rate by 115 basis points since late March 2020 to support growth
Higher inflation projection rules out any rate cut possibility in the first half of FY22; bond yield jumps
The other signals expected from the policy related to the rollback of measures announced during the pandemic
Projection for CPI-based inflation revised to 5.2% for Q4 of FY21, for H1 of FY22 at 5% to 5.2%, and for Q3 of FY22 at 4.3%
The reverse repo rate will also continue to earn 3.35 per cent for banks for their deposits kept with the RBI
The apex bank would still like to drain out some liquidity while managing yields through OMO or operation twist, to fend off inflation, especially when rate hikes seem distant
Beyond hype, if the Budget creates a platform for growth, the RBI will have to change the policy's stance, but that won't happen - now or even in April
The job of breaking the back of inflation is left to the government's proactive supply management strategies, for now
RBI will have to address the excess liquidity issue
He says, the rate cycle seems to have bottomed out but RBI may not change its accommodative stance anytime soon