Mr Abheek Barua, Chief Economist, HDFC Bank, on the monetary policy commented of the RBI policy, which was status quo as the central bank kept its policy rate and stance unchanged, as expected. However, the RBI seemed less hawkish on liquidity management compared to the previous policy which could be seen as a signal of a move towards neutrality. This implies that while the RBI is likely to act against a significant surplus, it might also not favour a large deficit going forward. We see some near-term downward pressures on liquidity due to tax outflows but a more comfortable position beginning 2024 led by higher government spending and foreign inflows. Moreover, structural changes like the opening of the SDF and MSF windows on weekends and holidays by the RBI today could also help aid more symmetric liquidity balances in the system. The overnight rate could start moving towards the repo rate from being close to the MSF over the coming months. The liquidity stance also seems to be in line with the RBI’s inflation forecast which shows a gradual move towards 5.2% and 4% in Q1 & Q2 in FY25.
The other change in the policy was the significant upward revision in the GDP forecast for FY24 to 7% — higher than our expectations of 6.8% for the full year. Interestingly, for next fiscal year, RBI GDP projections also remain on the higher side at 6.7% and 6.5% in Q1 & Q2 FY25. Whether these upbeat numbers signal that there is room for monetary policy to remain tight for longer or infact assume support from some easing in monetary policy remains an open question. For now, we continue to expect the RBI to start its rate cut cycle not before the June/August policy in 2024.
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