RBI Monetary Policy - Dec 2020 - Views of Industry Experts

Suvodeep Rakshit, Vice President & Senior Economist at Kotak Institutional Equities

"The December policy was expected to be a non-event in terms of policy actions. The RBI MPC's decision to keep policy rates unchanged was as expected. We maintain our view that the rate cut cycle is over, for now. It is important to note that the RBI estimates growth to be positive in both 3QFY21 and 4QFY21 while inflation remains well above the 4% till 2QFY22. If at all, any further rate cut (25-30 bps) will be contingent on weaker-than-expected growth trajectory (sharp deceleration in growth impulses after the festive season) and/or lower-than-expected inflation trajectory. Though some recent expectations had built up for some liquidity action in order to align short-term rates closer to the reverse repo rate, the RBI kept liquidity policy unchanged. Given that inflation is not yet driven by monetary factors, surplus liquidity is unlikely to interfere with monetary policy objectives. We continue to expect no major liquidity withdrawal measures in the near term."

Source : Equity Bulls

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