Making Sense

RBI's policy decision was largely on expected lines and couple of points that stood out to me from the policy document and the press conference are stated below: 1. Inflation is moderating but the pace of disinflation is uneven and slow and there is still a distance to cover to align headline inflation to target.  2. RBI is watchful of all incoming data from domestic as well as external  sources and ready to deal with all emerging situations. However, the Governor noted caution in reading too much from a single month's employment number since Atlanta Fed GDPNow data is still trending at 2.9% and US has demonstrated growth resilience.  3. On the LCR , the draft circular is still under consideration. According to research reports, estimates are that draft guidelines on LCR if implemented could absorb liquidity in the ball park 5 Lac crore range.  4. On the decision to exclude newly issued 14Y and 30Y  bonds from FAR securities, DG Patra explained in detail th...

T he MPC is scheduled to announce the interest rate decision on Feb 8, 2024. Expectations: Interest Decision     No change expected, 6.25% - 6.50% - 6.75% (SDF - Repo - MSF) Policy Stance        Withdrawal of Accommodation (the monetary policy stance hinges on the direction of policy rates) - Strength of the Domestic Economy gives RBI the latitude to be patient to assess evolving risks and retain the possibility of a further hike, hence no change in policy stance is expected. Liquidity management The system liquidity deficit reached a peak of 346K Crore on Jan 24. The O/N WACR was seen at 6.77%. The system liquidity has steadily improved and the WACR dropped to 6.29% on Feb 2, 2024. The reason being that market participants have taken up 250K crore through a 15 day Repo conducted by the RBI on Jan 25, 2024 and as liquidity conditions have progressively improved on month end Government spending, market participants are parking funds in SDF and the...

 The FOMC increased the Fed funds rate by 25 bps to 5.00 - 5.25%. The March FOMC statement  had mentioned: "The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time." The May FOMC statement has been revised to say "In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time"..... Which essentially points to a "pause". The Fed fund pricing is pretty much stable with Dec 13, 2023 FFR being priced at 4.39%. USD index is a tad bit lower and 2Y USTs are trading at 3.92% and 10Y at 3.40%. The meltdown in commodities continues. Brent crude prices down further 3.65% to 72.55 USD per barrel. The sharp drop in crude oil prices is a big tailwind for INR. 81.60 continues to be a very important level for the pair. Let's watch tomorrow's opening. Looks lik...

After the tumultuous Asian Session yesterday, risk sentiment stabilized overnight as markets took comfort  in the  spate of liquidity measures announced by CBs media reports of  U.S. Treasury Department staff studying if federal regulators have enough emergency authority to insure deposits above the current $250,000 cap on accounts without the consent of Congress  and most recently Tsy Secretary Janet Yellen comments " US aggregate deposit outflows from Regional Banks have stabilised. Tsy, Fed, FDIC actiions reduced risk of further bank failures that would have imposed losses on Deposit insurance fund. Similar actions to protect Depositors could be warranted if smaller institutions suffer deposit runs that pose risk of contagion" Sharp moves were seen across Rates. After the sharp dip in rates on write off of AT1 bonds by Credit Suisse, USD bonds pulled back.  For Domestic markets, RBI injected liquidity through the LAF window to the tune of 79K crore on 20 Mar ...