As expected RBI kept the key policy rates unchanged in the Bi-Monthly Review. However, it reduced the Statutory Liquidity Ratio (SLR) of banks by 50 bps to 22.5% and also reduced liquidity provided under export credit refinance (ECR) facility. To compensate for the reduction in ECR facility, it introduced a special term repo equivalent to 0.25% of NDTL (Net Demand and Time Liabilities). The reduction of SLR may not have an immediate impact on demand from banks, as credit growth remains muted. RBI also noted that while there was an uptick in recent headline CPI numbers, it was mainly on account of higher food prices, which are seasonal in nature, and the core CPI has been moderating. Overall, the tone of the policy seems to have moderated in comparison with previous policy statements. However, RBI may remain on hold for some time as it closely watches trajectory of inflation over next few months. Markets will closely watch the Budget numbers to be unveiled in July 2014, and markets may remain range bound till then. Short term rates may continue to drift downwards, as liquidity continues to remain easy. Expect 10Y yield to remain in 8.40-8.80% till budget with a downward bias.
Powered by Capital Market - Live News
