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)
...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)

• • •

Missing some Tweet in this thread? You can try to force a refresh

Keep Current with Arjun G Nagarajan

Arjun G Nagarajan Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!


Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @arjungn80

25 Aug
Will #India see an increase in cases like #Kerala? Kerala daily infections appear to have just seen an increase after its recent festival ended. This appears to have been just after a surge in mobility indicators. The festive season for India as a whole is set to start...(1/5)
...early October and extending into mid-November. Like seen in Kerala mobility indicators that have just near normalised are expected to see a sharp increase. If Kerala #COVID19 cases rise now, can one extrapolate this into India infections? One cannot say for sure. But...(2/5)
...if one were to go by the #seroprevalence framework tweeted earlier, it appears unlikely for the rest of India to follow a Kerala like surge. Do recollect here that in the sero survey, one state that recorded very lowest seroprevalence was Kerala (44%) and the highest...(3/5)
Read 5 tweets
11 Aug
China PMI weakness ahead? Following up on the quoted tweet, one zeroes in on #China's #manufacturing #PMI. Key Asian economies have seen weakness on the back of a rise in their #COVID-19 curves and related restrictions on activity. China has been experiencing multiple...(1/4)
...issues. The recent policy shock aside, from mid-July, China saw power outages, significant floods, all in provinces housing key manufacturing-hubs. Adding to this, the recent surge in COVID-cases have led to a string of lockdowns/restrictions across 14 provinces. While...(2/4)
...the extreme weather disturbances in July was expected to have dented China's production, the PMI manufacturing numbers were only marginally lower. Focus now shifts on August activity that is now expected to tag its Asian neighbours like Malaysia, Vietnam and...(3/4)
Read 4 tweets
9 Aug
Is the #RBI's #VRRR move policy normalisation? Fridays' note argued that the upward calibration of the variable rate reverse repo (VRRR) was not a sign of normalisation of policy, especially when the Governor said it himself explicitly. The note argued that the VRRR...(1/12)
...calibration was just shifting of monies from one pocket to another, especially when the #callmoney rate is still 22bps below the reverse repo rate. The focus therefore is to bring the call rate closer to the policy rate, when system liquidity is on the rise. One can...(2/12)
...justify the market narrative on three counts. Firstly, the markets saw a surprise dissent against the policy decision (5:1) and noted that it was not unanimous. Secondly, the 60bps upward revision to inflation created a flutter especially when the RBI maintained a...(3/12)
Read 12 tweets
16 Jul
Have faith in the Fed. In his testimony to the Congress/Senate Banking Committee, Powell urged lawmakers to have faith in the Fed's judgement. The Fed Chair reiterated his message that inflation would stay elevated for a few more months before moderating...(1/6)
...and that it would be too risky to tighten policy too early. He said:
“The challenge we’re confronting is how to react to this inflation, which is larger than we had expected or that anybody had expected. To the extent that it is temporary, then it would not...(2/6) appropriate to react to that. But to the extent that it gets longer and longer, we’ll have to continue to revaluate the risks that would affect inflation expectations and would be of longer duration and that’s what we’re monitoring...”.
On the nature of...(3/6)
Read 6 tweets
16 Jul
#Crude down 5% in the last few days. Crude prices have been correcting over the last few days by around 5% from its recent high of $75.4 on Wednesday. This comes on the back of press reports quoting #OPEC+ sources that the #UAE had reached a compromise. UAE's baseline...(1/4)
...output is expected to be increased to 3.65mbpd from the current 3.17mmbpd. This is broadly in line with recent market expectations. This eases the markets' read of a tight supply situation and helps soften the demand-supply balance, especially given the...(2/4)
...expectation of a demand pickup in H2 of 2021. Further on the Iranian wildcard we had written about in an earlier tweet, Iran is not expected to return to the negotiating table with the #US until it forms a new government, that is expected to take office...(3/4)
Read 4 tweets
14 Jul
US inflation reaffirms 'transitory'. US inflation continued to rise and stood higher than expectations for a third month in a row. US inflation for the month of June stood at 5.4% y/y, much higher than market expectation of 4.9%. Core inflation also rose higher to...(1/8)
...4.5%, higher than the 4% consensus.
Why does this again reaffirm transitory for the Fed? This is mainly because the key drivers of inflation came from almost the same items seen in earlier months: used cars/trucks (45%), gasoline (45%), fuel oil (45%), utility...(2/8)
...gas service (16%) and transportation services (10%). These are almost entirely reflective of reopening of the economy and could moderate into the months ahead as the economy continues to normalise. July is a month when most of the US would be up and...(3/8)
Read 8 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!