Views on Monetary measures by RBI - Acuité Ratings & Research

"The monetary measures announced by RBI are in line with our expectations that the central bank will take steps to cool down the bond yields which have seen a spurt in the last few weeks. RBI had already announced one round of Operation Twist and another similar round by mid-September will take the aggregate volume of such operations to Rs 40,000 Cr. This will help to stabilize the bond yield curve which has suddenly become a bit steep. The increase of 2.5% in the HTM category from 19.5% to 22.0% for SLR securities will also enable banks to purchase additional government papers and also address the short term MTM concerns. Additionally, RBI has also proposed large scale term repo operations in September when advance tax flows are likely to impact the system liquidity and thereby, give a boost to the banks' fresh investments in both government and corporate bonds. In our opinion, higher demand accruing from such measures will help to address to moderate the increased bond yields in the short term. However, the twin headwinds of persistently high inflation and increased fiscal stress may make such a task difficult in the longer term."

Source : Equity Bulls

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