India: RBI’s rate announcement today is the next big event - TDS

Research Team at TDS explains that following the BJP’s landslide victory in the UP state elections and positive market reaction, the RBI’s rate announcement today is the next big event for Indian markets, but only on paper.

Key Quotes

“In fact, we think there is still scope for easing up to a couple of times this year, but not this week. We see no need for the MPC to change its narrative on monetary policy after moving to a neutral stance in February. While growth is weaker than its underlying trend due to still measurable effects of demonetization, steady rates are predicated on the risk of rising inflation going forward. Therefore, the key repo rate should remain on hold at 6.25% today, the reverse repo will be held at 5.75% and CRR at 4.00%.”

“More interesting will be to dig into the details of the statement, and find out that the RBI has introduced new liquidity management measures that are alternative to the reverse repo facility and the CRR. Although implementation will inevitably take longer, the idea the RBI may be working on is to develop an uncollateralized standing deposit facility to help drain excess liquidity.”