RBI Bulletin: MPC likely to remain accommodative in October policy
Every month, the Reserve Bank of India (RBI) releases a bulletin, which carries an assessment of the economy and market reads. This helps to understand when the Central Bank might start reducing liquidity or change its accommodative stance. The assessment of the market from the August bulletin is dovish. Here’s why:
The RBI sounds positive on economic recovery, especially when it talks about exports, toll and tax collections. Analysing the first quarter of the 1,427 companies, which accounts for 86 percent of the market, RBI says sales are up 57 percent year-on-year, but down 9 percent. Demand is limping back towards normal, but a catch-up will take some time. This indicates that although the RBI is positive on growth, it is still dovish.
On inflation:
RBI says May inflation was high and first quarter CPI average turned out to be 5.6 percent, while it had originally projected 5.2 percent in its MPC meeting. But it says the worst of the inflation spike is over and hereafter inflation will stay within RBI’s forecast of 5.7 percent, so one can conclude that the RBI is dovish.
On liquidity:
The Central Bank goes the distance to say that its plan to reduce liquidity should not be confused with RBI tightening by stealth. RBI withdraws liquidity through the 14-day variable rate reverse repo (VRRR) auction. It has announced it will increase the amounts withdrawn via variable reverse repo from Rs 2.5 trillion per 14 days in August to Rs 4 trillion per 14 days in September.
The RBI says that this idea of increasing the VRRR and giving the timetable first came from market participants and it was not their idea to reduce liquidity. Secondly, it says how one can accuse it of tightening liquidity when simultaneously RBI is also buying government bonds under G-SAP, which increases liquidity. So, RBI is dovish as far as liquidity is concerned.
Moreover, the RBI bulletin reports are written by Deputy Governor Michael Patra. From the above analysis, the market is convinced that Patra would remain dovish in the coming policies. However, two members, Professor Jayant Varma and Dr Mridul Saggar, are known to be hawks from their previous reports in the minutes. While the other three members, Governor Shaktikanta Das, Dr Ashima Goyal and Dr Shashank Bhide seem dovish from their comments in previous policies.
So, if we add Patra to this list, then doves have the upper hand and therefore MPC would likely remain accommodative at least in the October policy as per market understanding.
For more, watch the accompanying video
(Edited by : Dipika Ghosh)
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
BJP is planning to ban RSS, says Shiv Sena (UBT) chief Uddhav Thackeray
May 18, 2024 8:01 PM
Punjab Lok Sabha elections: Complete list of Congress candidates
May 18, 2024 4:08 PM
Punjab Lok Sabha elections: Check full list of AAP candidates and constituencies
May 18, 2024 12:59 PM
PM Modi, Rahul Gandhi election rallies in Delhi today: Here are the routes to avoid
May 18, 2024 11:28 AM