"All members of RBI MPC decided to keep key rates unchanged and stance as accommodative and pledged to continue to sustain growth on durable basis. Some concern has been expressed on input cost pressures which can feed into inflation particularly commodity prices and logistic risks. However overall RBI indicated that there are both downward and upward pressures on inflation reflecting their stance that they likely do not see inflation as a major concern. In this backdrop the continuation of the FIT (flexible Inflation targeting) Regime for next 5 yrs is also seen as a validation of its success since past five years and gives a good measure of policy continuity.
For the markets, the most positive announcement from the Policy was the announcement of G-SAP 1.0 signalling a move towards a more structured and orderly manner of conducting open market secondary purchases of government securities. For the first quarter of FY 22, Rs 1 lakh crore worth of purchases has been announced and an amount of Rs 25,000 cr next week itself. Thus market is now assured of regular open market operations. This bodes well for medium to long end government securities which has already seen some softening in yields today post the announcement. Other measures including extension of TLTRO on Tap scheme, Liquidity facility for all India Financial institutions, extending the PSL classification for lending by banks to NBFCs for onward lending to certain sectors and continuation of enhanced WMA (ways and means advances) limit for State governments will help to continue to provide relief in wake of renewed concerns on growth amid a surge in COVID cases.
Overall the policy is dovish and remains focused on maintaining orderly yield curve conditions as well as extending support to needy sectors.
We recommend investors to continue to have a balanced asset allocation mix in high quality short term and medium duration debt funds."
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