 "Shaktikanta Das")
Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday said the monetary policy stance -- “withdrawal of accommodation” -- was in terms of interest rates, and it should be seen in the context of incomplete transmission, along with the inflation rate staying above 4 per cent.
“Our stance of withdrawal of accommodation should be seen in the context of … our efforts to bring it back to the target on a durable basis,” said Das in his monetary policy statement.
Das elaborated on liquidity conditions, ascribing them to external factors, and they were expected to rectify in the foreseeable future, bolstered by market interventions by the central bank.
The RBI, he said, is agile and adaptable in its liquidity management, employing both repo and reverse repo operations. He said the RBI would utilise a judicious mix of instruments to regulate both short-term and long-term liquidity, ensuring that money market interest rates evolved systematically while upholding financial stability.
“On liquidity, Das has preferred to communicate the RBI’s nimbleness to act to address both frictional and durable liquidity rather than disrupt monetary policy coordinates, thereby delinking liquidity from stance,” said Aurodeep Nandi, India economist, Nomura.
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Das had clarified the RBI would try to keep liquidity at a level wherein the overnight call rate, the operating target of the monetary policy, remained around the repo rate.
“On liquidity, the central bank seemed to suggest that liquidity deficits were broadly frictional and durable liquidity remained more comfortable. It did not announce any new measures and said that it would continue to manage liquidity through its fine-tuning operations including tools like the variable rate repo and reverse repo auctions,” said Abheek Barua, chief economist, HDFC Bank.
The market was expecting a shift in the monetary policy committee’s stance, citing continuous variable rate auctions, administered by the RBI. Ahead of the MPC’s decision, market participants speculated the continuous infusion of liquidity by the RBI might prompt a transition from the current stance of “withdrawal of accommodation” to “neutral”.
“The RBI’s balanced stance on liquidity augurs well for the economy. It’s prudent not to let go of the gains made on inflation; therefore any overhang of surplus needs to be avoided. The inflation projection of 4.5 per cent next year may be conservative and we may see some change in stance after Q2 next year. The RBI will consider easing liquidity first and then will resort to cutting rates if required,” said Alok Singh, group head (treasury), CSB Bank.
