Making Sense

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 ...

“…inexhaustible perseverance and patience… knows no defeat.”  RBI announced the MPC decision today. Key Highlights: Repo Rate stands unchanged at 6.50% (unanimous decision) SDF Rate 6.25% and MSF at 6.75% Stance continues to be "withdrawal of accommodation" (Vote 5 to 1) Inflation projected moved 10 bps lower for full FY 24 to 5.2% from 5.30% on crude oil price assumption of $ 85 per barrel ( last policy $ 95) and a normal monsoon.  Inflation Outlook - The risk to inflation trajectory are evenly balanced with upside risk emanating from adverse climatic conditions, higher and likely to stay elevated milk prices into the summer, rising uncertainty in Intl Financial markets and imported cost pressures GDP is projected to grow marginally higher at 6.50% with 10 bps upward revision in both Q3 and Q4 FY 24.  GDP Outlook - The risks to domestic growth are evenly balanced. High Rabi production, steady growth in services sector, GoI's focus on capital expenditure, higher capacity ...

RBI announced a fine tuning liquidity operation to the tune of INR 75000 cr for liquidity infusions on 24th March 2023 on account of maturity of 95K crore of outstanding Repo operations. The uptake was to the tune of 56K Cr, lower than the notified amount of 75K cr. Accordingly, Liquidity injected from O/S operations stands to the tune of INR 92K crore and fine tuning operations stands at 56K crore. Net liquidity absorbed through the corridor facilities (MSF + SDF) stands at 70K crore. LAF injection is at 78K crore . W eighed Average Call Rate has been stable at 6.55%.   Durable Liquidity has been steadily declining and as on 10 March 2023, the number stood at 101K cr declining 58k cr between 24 Feb 23 and 10 Mar 23. As on 16 Dec 2022 durable liquidity was 299K cr and CIC 32.41 Lac cr. CIC for the w/e 10 Mar 23 is 33.73 lac cr, change of 1.3 lac cr. So durable liquidity has seen a change of 198k cr which can be explained through 1.3 lac cr change in CIC and the balance Inr 68k cr ...

"Accuracy of Observation is the equivalent of accuracy of Thinking" I wrote about the expectations from the MPC yesterday and as expected RBI hiked repo rate by 25 bps to 6.50%. Consequently, SDF rate now stands at 6.25% and MSF rate at 6.75%. MPC voted 4 - 2 for change in policy rate.  On the change in monetary policy stance, MPC voted 4 - 2 to maintain monetary policy stance " withdrawal of accommodation" Key Highlights from the MPC Rate decision 1. Global growth prospects have improved 2. Domestic growth is likely to be supported by higher Rabi acreage, sustained urban demand, improving rural demand, robust credit expansion, gains in consumer and business optimism and the government’s enhanced thrust on capital expenditure and infrastructure in the Union Budget 2023-24 3. While RBI acknowledged the continuing downward momentum in inflation in FY 24, it estimated inflation to rule above 4% (RBI has an inflation target of 4% +/- 2%) and domestic economic growth to...

Current liquidity operations with the RBI As on 26th Dec 2022, the net LAF injection by RBI stood at 15K crore. Understanding the component wise break up is important here:  The maturity profile of the outstanding operations is as : RBI stance on liquidity RBI in the last monetary policy meeting retained the stance towards withdrawal of accommodation. The document stated "RBI remains watchful of evolving liquidity conditions and stands ready to inject liquidity, if required, to meet the productive requirements of the economy. This, however, would be contingent upon a durable turn in the liquidity cycle when banks would move away from holding large balances under the SDF and variable rate reverse repos". Anticipating the future liquidity trajectory Variable rate reverse repo stand at 13453 crs maturing on Dec 30, 2022.  Now the liquidity management framework (26 Sep 2019) recommended that the design of the corridor system generally requires system liquidity to be in a small de...