Policy decisions are in line with expectation

Mumbai, Apr 08 Experts believe that the policy decisions are in line with their expectation.

Talking to Bizz Buzz, Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities says, "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 per cent even as reverse repo rate is at 3.35 per cent.

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 per cent from 4.5 per cent.

The concern on growth is relatively lower in this policy even as FY2023 GDP growth estimate has been lowered to 7.2 per cent from 7.8 per cent. 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."

Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mahindra Asset Management Company said, "The policy left key rates unchanged, however has introduced SDF (standing deposit facility) at 3.75 per cent this effectively means the overnight rates will Have a floor of 3.75 per cent (rise by 40 bps), she added.

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.