Monetary Policy Updates: MPC Keeps Rates Unchanged; RBI To Hold OMOs In State Development Loans

Saugata Bhattacharya, Chief Economist, Axis Bank

• The growth estimate helps guide future policy action
• We also have a clearer sense of direction with regard to inflation
• Don’t see further scope for repo rate cuts
• The amount of additional measures in the policy are reaching ECB levels
• Non-disruptive evolution of the bond market has been a constant theme
• The RBI seems to be very serious about spending money to push growth higher
• Would not need statutory legislative change for RBI to conduct OMOs in SDLs

Arvind Chari, Head- Fixed Income, Quantum Advisors

• For the bond market, this is like Christmas came early
• Everything that the bond market has asked for, the RBI Governor has delivered
• Expect bond yields to head down after this
• The increase in the quantum of the OMO is something the market had asked for
• Found the TLTRO, HTM measures very significant for the bond market
• The RBI’s announcement of OMOs in SDLs should reduce the spread of yields over GSECs
• The RBI has been listening to the markets and tried to address dysfunctions
• Today’s was a very big commitment to the market by the RBI
• Market keeps expecting more every time there is an impact

Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities

• GDP and inflation forecasts welcome, in-line with market expectations
• No interest rate cut coming in December
• Growth, demand conditions will indicate if rate cut necessary in February
• Whether policy rate should be lowered in February, or if fiscal policy should be driving force remains to be seen

• To conduct OMO in SDLs as a special case this year.
• Should expel liquidity concerns regarding SDLs.

Consumer Price Index inflation will remain elevated in the September print and ease gradually in Q3 and Q3, Das said.

• Supply disruptions and associated margins and mark-ups are major factors driving inflation.
• As supply chains are restored, these wedges should dissipate.

• Announcing an on-tap TLTRO with tenors of upto three years with total amount of Rs 1 lakh crore at a floating rate linked to repo rate.
• Amount and period to be enhanced after review.
• Liquidity availed under this scheme can be used to provide bank loans toward this sector.
• In order to provide certainty to banks, RBI to extend dispensation on enhanced limits of SLR securities under HTM category to March 31, 2022.