Monetary Policy Review - 2QFY2014 - Angel Broking

Focus returns on growth-inflation dynamics

The Reserve Bank of India (RBI) delivered largely in line with our and the market expectations by hiking the repo rate by 25bp and reducing the Marginal Standing Facility (MSF) rate by a similar quantum.

The repo rate now stands at 7.75% and the MSF at 8.25% with the corridor between the policy rates normalized at 100bp from 150bp earlier.

The policy has continued to emphasize on price stability and anchoring inflationary expectations. The increase in repo rate is a follow up to a similar hike in the September policy review.

The RBI has in fact eased liquidity conditions by also increasing the liquidity provided through term repos of 7-day and 14-day tenor to 0.5% from 0.25% of the banking systems' NDTL.

We believe that with stabilization in the exchange rate and unwinding of the exceptional short-term liquidity tightening measures, the focus has now shifted back to the growth-inflation dynamic being a determinant for further policy action.

Source : Equity Bulls

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