Comment by Mr. Rajeev Radhakrishnan, Head – Fixed Income, SBI Mutual Fund on the RBI Third Bi- monthly Monetary Policy:
The key takeaway from the RBI monetary Policy statement is the central bank’s resolve to pro-actively address any potential liquidity deficits and to move the system to a structurally neutral liquidity position over time. The OMO purchase announcement at a time when seasonality has led to recent surplus liquidity conditions effectively demonstrates the commitment to be proactive on the liquidity front. The other significant announcement is the announcement of measures to improve market functioning towards the end of the current month, which may include steps to deepen the corporate bond market. Structural factors and potential upside pressures emanating from higher consumption demand and sticky services inflation could constrain incremental policy rate easing, considering the inflation targeting framework and MPC under which policy rate setting is to determined going forward. Also policy actions are also likely to emanate from the liquidity channel given the constraints on policy rate easing, with the RBI likely to stress on transmission of earlier rate cuts.
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