Making Sense

  The MPC is scheduled to announce the interest rate decision on April 5, 2024 Expectations: Interest Decision             No change expected, 6.25% - 6.50% - 6.75% (SDF - Repo - MSF) Policy Stance          With FY25 Inflation estimates at 4.40% and RBI Policy Rate at 6.50%, RBI is well into restrictive territory with Real Rates on a Forward-Looking basis at over 2%. A whole new discussion around higher Neutral Rates has espoused as growth has consistently outpaced expectations.  PMIs have been in expansion territory and credit growth has been robust at an average 15.39% for the calendar 2023. Expectations into FY25 growth are robust with through the year growth seen at 7.40% and FY24 growth seen clocking 8%.  Outlook for inflation is benign with through the year inflation numbers likely in the vicinity of the lower band of the 4% - 6% target. According to RBI Monthly B...

Embrace the "Mujo" philosophy which involves acknowledging the impermanence and transience of all things in life. In trading, the environment is changing constantly and we must endeavor to recognize the changes and quickly adapt to respond better to the changing environment.  In the Oct 6 Policy Statement, Governor mentioned the possibility of OMO Sales and   I wrote in an  earlier article  the expectations for the same. Additionally, OMO Sales were seen as a tool for maintaining the interest rate differential with the U.S. Durable Liquidity (in Inr Crs) as on Dec 15, 2023 215,664 CiC (in Inr Crs) as on Dec 15, 2023 33,67,675 Estimate CiC Increase over the next Quarter (in INR Crs) 150,000 Durable Liquidity est as at end of Mar 31, 2024 (in INR Crs)* 65,000 Estimated CiC Increase in April 2024 (in INR Crs) 65,000 – 75,000 Estimated CiC ...

"Money may not be everyone's goal for it's own sake, but it's everyone's unit of account" The Fed announced the monetary policy decision overnight and the kept the interest rates unchanged at 5.25% - 5.50%. The key takeaways from the decision, SEP and Post Policy Conference are: SEP Projections: All participants saw the peak Fed Fund Rate at the current levels of 5.25% - 5.50%. For 2023, Real GDP was revised 50 bps higher and Inflation projections were lowered by 50 bps. As per Fed median projections, median estimates are for 75 bps of rate cuts in 2024 and 100 bps of rate cuts in 2025. While cumulative rate cuts over the 2 years stay at 175 bps over the two statements (sep and dec), 25 bps of rate cut has been brought forward in 2024.  In 2024, Fed sees positive but below trend growth ( Fed sees 2024 as the year of below trend growth at 1.40%) , U/R holding steady, Inflation closer to the 2% handle.  The message from the post policy conference was  Economic A...

 "What a wise man does in the beginning, a fool does in the end." RBIs beginning remarks state that Major Central Banks have kept rates on hold while refraining from forward guidance in view of prevailing uncertainties and that's what RBI did too. RBI announced the monetary policy decision on Friday. The Repo rate was kept unchanged and the monetary policy corridor with SDF at 6.25% and MSF at 6.75% retained. The withdrawal of accommodation stance was maintained.  The growth projection for FY 2024 was revised higher by 50 bps to 7% and Dr. Patra suggested that the growth outturn could be higher based on high frequency indicators in Oct and Nov 2023.  Inflation projections for FY 2024 were retained at 5.40%. For next FY, Inflation is seen to average 5.20% in Q1 and decelerate to 4% in Q2 before reaccelerating to 4.70% in Q3. The risks to the inflation outcome come from uncertainty in food prices. Rabi sowing of wheat, pulses and spices need to be closely monitored. The tra...

Rate Decision      RBI policy mentioned the use of OMO sales which is a more durable liquidity absorbing measure and the catalyst for a policy pivot comes from a durable decline in inflation to near about 4% Policy Rate                               Unchanged Stance of Monetary Policy Withdrawal of Accommodation ( 5 - 1) Growth Projections                     Unchanged (2024 FY 6.50%, Q1 25 6.60%) Inflation Projections           Unchanged (2024 FY 5.40%, Q1 25 5.20%) Liquidity                                    May have to consider OMO sales Key takeaways from the earlier meeting 1. Inflation target is 4% and a Pivot in policy from tightening to accommodative will not happen ...