In contrast to the consensus view of a 20 bps increase in the reverse repo rate, the RBI maintained status quo in its Feb-22 policy review.
Download ReportRBI Policy: Budge not, ponder later
In contrast to the consensus view of a 20 bps increase in the reverse repo rate, the RBI maintained status quo in its Feb-22 policy review. Policy guidance continues to remain accommodative with ongoing calibration of liquidity surplus. This seems to be RBI’s BNPL moment (budge not, ponder later) as the withdrawal of monetary accommodation would not be symmetric in comparison to its provision. In other words, this implies a reactive central bank response function (to inflation), rather than a proactive approach seen prior to the pandemic. With economic activity gradually normalizing, we continue to expect the need for reverting to the pre pandemic level of monetary policy framework, characterized by the policy rate corridor width of 25 bps. As such, we expect the RBI to opt for a cumulative 40 bps upward adjustment in reverse repo rate spread evenly between April and June 2022 policy reviews. The eventual policy normalization would kick in thereafter with 50 bps cumulative hike in the repo rate in the remaining months of FY23.