Monetary Policy Expectation - April 2021 - Acuité Ratings & Research

Mr.Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research on Monetary Policy Expectation:

"Acuité Ratings believes that MPC in its upcoming meeting will continue to reaffirm the accommodative monetary policy despite the global increase in bond yields amidst concerns of a quicker than expected normalisation in the markets of developed economies.

The continued progress on vaccine administration, especially in the US and UK, higher headline inflation and prospects of its further rise in the context of improving growth, have pushed up bond yields in most of the markets including India. On the domestic front, the upward pressure on gsec yields is also driven by a sharp increase in sovereign borrowings and risks of higher inflation arising from the elevated retail fuel prices. While the MPC would need to take cognizance of these factors, it is expected to support the ongoing but nascent economic recovery by extending the pause on interest rates for a longer period.

We would expect RBI to manage the govt. bond yields within a corridor of +/- 20 bps from the current levels through the use of appropriate monetary tools including OMOs. Any decisive move towards policy tightening is likely to happen only when the growth momentum in the economy is firmly established or average inflation structurally moves well beyond 6.0%, something which we don't foresee over the next 6 months. Given the current projections, we see the likelihood of a rate hike only in the last quarter of FY22."

Source : Equity Bulls

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