Monetary policy to stay accommodative in near term, but exit is near

Despite the fiscal activism in the Budget, the MPC stated that the recovery was yet to gain firm traction and needed continued policy support

The MPC meeting was widely awaited for three reasons. First, to gauge the RBI’s liquidity stance, as the announcement of the variable rate reverse repo auction in early January was perceived by markets as a reversal of the accommodative stance. Second, to assess whether an expansionary Budget would mean less monetary policy support; and third, to seek more clarity on how the RBI would manage the government’s large market borrowings non-disruptively.

On all these counts, the RBI delivered on the dovish side. It reiterated its commitment to ample liquidity and even staggered the impending cash reserve ratio hikes, so that it