Monetary Policy Update - February 2021 - ICICI Direct

The Reserve Bank of India (RBI) maintained its repo rate at 4.0%, reverse repo rate at 3.35% and MSF at 4.25%. MPC members voted unanimously on status quo and maintained 'accommodative' stance. Restoring CRR to 4% from 3% to manage liquidity and this opens up space for a variety of market operations to inject additional liquidity by RBI. Several measures like TLTRO to NBFCs and more were also announced by RBI in today's policy.

This recent sell-off in yield movement, however, has to be seen in the context of the significant rally which has taken place in the last two years where 10 year G-Sec yield has declined from ~9% levels to below 6%. We were anyway at the lower end of the interest rate cycle where the RBI is now likely to keep benchmark rates on hold. Hence, in that sense this 20-25 bps sell-off should not be seen as a reversal of the interest rate cycle. Market participants just do not want to take overweight positions at fag end of the rate cycle. Long term debt allocation should be done in a staggered manner over the next few quarters instead of lumpsum at current levels.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_RBIAction_Feb21.pdf

Source : Equity Bulls

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