One 'hawk' does not initiate normalisation. The markets were keenly awaiting the #MPC #minutes. And one can comfortably say that the details of what was discussed was hardly as hawkish as the markets had assumed soon after the policy. Prof.Jayanth Varma was the single...(1/12)
...dissenter in the August monetary policy. He voted against the status-quo accommodative policy on the following key counts. Firstly, he believed that the reverse repo rate must not remain at current levels (3.35%) and that a phased normalisation was warranted. He...(2/12)
...remained concerned of the #RBI continuing its accommodative policy given his expectation that COVID-19 would last for another 3-5 years. He sees inflationary pressures turning persistent and also views the adverse effects of the pandemic to only be limited to select...(3/12)
...sectors that needed more of fiscal policy support. And the final key point rested on his view that the RBI's pro-growth policy in an environment of elevated inflation could upset macroeconomic stability. In short, the MPC minutes saw all members of the view that...(4/12)
...the growth recovery needed support and 5/6 members holding the view that inflation was transitory. The comments below from some select MPC members would help reiterate the pro-growth stance seen in the minutes; similar to what was seen in the policy. Dr.Das' view saw...(5/12)
...further articulation that the economy "still requires support". The strongest heard was that of Dr.Patra who mentioned that there was "substantial slack in resource utilisation" and that the "highest priority" was to "revive growth along a sustainable trajectory"...(6/12)
...which then becomes compatible with inflation as and when the pandemic eases.
There is one more key point that needs to be noted here. The MPC votes on the Repo rate and not the Reverse repo rate. And one can argue that this makes all the difference. So, while the...(7/12)
There is one more key point that needs to be noted here. The MPC votes on the Repo rate and not the Reverse repo rate. And one can argue that this makes all the difference. So, while the...(7/12)
...RBI votes on the Repo rate and comments on all others, the reverse repo rate is under the control of the RBI (read: Mr.Das). And Mr.Das is heavily pro-growth and pro accommodation. Also do note that the significant excess liquidity in the system has made sure that...(8/12)
...the effective policy rate is the reverse repo rate. The weighted call rate last seen was 3.12%, 23bps below the Reverse repo rate. Monies in the reverse repo window (fixed+variable) remained broadly unchanged at Rs.8.3tr (from Rs.8.5tr). Therefore, in short, the MPC...(9/12)
...minutes appear to soften the market's perceived view of an RBI normalisation. In addition, with the MPC not having any direct-say on where the reverse repo rate should be, it is fairly likely that the key variables to look forward to are Mr.Das' view on the economy...(10/12)
...and the weighted call rate. Any sharp upward move in the call rate would be pre-cursor of any move towards normalisation. These two cues are fairly important, especially given that we still do not have a clear sense on how a third wave would playout. Onam is underway...(11/12)
...and has seen a sharp increase in mobility. And the festive season is just round the corner. We hope that the 68% seroprevalence narrative could help shield us for any appreciable wave, keeping it contained to more of a 'ripple'.(12/12)
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