Industry Expert Views on Monetary Policy - April, 2022

Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mahindra Asset Management Company

"The policy left key rates unchanged, however has introduced SDF ( standing deposit facility ) at 3.75% this effectively means the overnight rates will Have a floor of 3.75% ( rise by 40bps) This policy, in some sense, is a Segway to tightening policy rates in the coming months. Expect yields to rise across the curve to reflect the policy stance. Key to see for longer end of The curve is if RBI actually walks the talk by Announcing OMO/ OT to anchor long bond yields."

Mr. Dhiraj Relli, MD &CEO, HDFC securities

"The latest RBI policy reflects hesitant hints to turn hawkish but sound dovish. The aggressive cut in GDP estimates for FY23 and sharp increase in FY23 inflation projections could mean some tightening measures going forward, reinforced by the change in stance to focus on withdrawal of accommodation. The current geopolitical events, supply chain issues and commodity price inflation are tying the hands of RBI and forcing it to gradually turn hawkish although it would like to continue with its pro growth outlook. 10 Year Gsec yields has risen to 7% reflecting the concern of the street on the large borrowing program amidst the rising rates scenario."

Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities:

"The policy decisions are in line with our expectation on repo rate and stance. The rate corridor has now effectively reduced to 25 bps compared to 65 bps earlier. The SDF window will become the new floor at 3.75% even as reverse repo rate is at 3.35%. The policy has decidedly shifted away from being dovish. RBI's concern on inflation has increased significantly especially with the FY2023 average inflation estimate revised up to 5.7% from 4.5%. The concern on growth is relatively lower in this policy even as FY2023 GDP growth estimate has been lowered to 7.2% from 7.8%. Commitment has also been made to start withdrawal of liquidity from FY2023 and over the next few years. This policy strengthens our view that the first repo rate hike will be in the August policy. We expect the stance to be changed to "neutral" from "accommodative" in the June policy."

Source : Equity Bulls

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