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Views on RBI Monetary Policy - Rajeev Radhakrishnan, CIO-Fixed Income, SBI Mutual Fund

8 Apr 2022 , 06:38 PM

“As the facts change, the RBI has accordingly shifted its assessment” This remains the takeaway from the policy review.

The April review was decidedly more nuanced and cautious in the assessment and guidance with the RBI acknowledging upside risks on inflation and taking measured steps to exit from the extremely accommodative policy stance. A key change has been the shift in the LAF corridor by instituting the Standing deposit Facility at 3.75%. The reverse repo rate, which has effectively been deemphasised (operations at RBI discretion) has been retained at 3.35%. Effectively these changes along with gradual unwinding of durable liquidity as announced, should push the effective overnight market rates closer to 3.75% as against 3.35% so far and lead to corresponding alignment in other short end segments. With no GSAP support announced, market demand supply dynamics should guide the yield curve even as the RBI could step in if market conditions turn disruptive."

Key Announcements:

FY23 GDP growth projected at 7.20 % as against 7.8% in the February 22 review.

FY23 CPI inflation projected at 5.70% with Q4 FY23 at 5.10% as against 4.5% and 4.2% respectively in the February 22 review.

February 22  April 22  Change 
Repo  4.00%  4.00%  No change 
Reverse Repo  3.35%  3.35%  No change 
MSF  4.25%  4.25%  No change 
CRR  4.00%  4.00%  No change 
SDF  3.75%  Introduced as the floor for 
LAF 
Guidance  Accommodative Stance with 5-1 
Vote 
Accommodative Stance with 5-1 
vote. 
Focus on withdrawal of 
accommodation 
*Our Subjective assessment of stance  Extremely Dovish  more nuanced in acknowledging 
inflation risks and more cautious 

-Rajeev Radhakrishnan, CIO-Fixed Income, SBI Mutual Fund

Related Tags

  • CPI inflation
  • GDP growth
  • Rajeev Radhakrishnan
  • RBI monetary policy
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