Views on RBI Monetary Policy - Rajeev Radhakrishnan, CIO-Fixed Income, SBI Mutual Fund

“As the facts change, the RBI has accordingly shifted its assessment” This remains the takeaway from the policy review.

The April review was decidedly more nuanced and cautious in the assessment and guidance with the RBI acknowledging upside risks on inflation and taking measured steps to exit from the extremely accommodative policy stance. A key change has been the shift in the LAF corridor by instituting the Standing deposit Facility at 3.75%. The reverse repo rate, which has effectively been deemphasised (operations at RBI discretion) has been retained at 3.35%. Effectively these changes along with gradual unwinding of durable liquidity as announced, should push the effective overnight market rates closer to 3.75% as against 3.35% so far and lead to corresponding alignment in other short end segments. With no GSAP support announced, market demand supply dynamics should guide the yield curve even as the RBI could step in if market conditions turn disruptive.”

Key Announcements:

FY23 GDP growth projected at 7.20 % as against 7.8% in the February 22 review.

FY23 CPI inflation projected at 5.70% with Q4 FY23 at 5.10% as against 4.5% and 4.2% respectively in the February 22 review.

	February 22	April 22	Change
Repo	4.00%	4.00%	No change
Reverse Repo	3.35%	3.35%	No change
MSF	4.25%	4.25%	No change
CRR	4.00%	4.00%	No change
SDF		3.75%	Introduced as the floor for  LAF
Guidance	Accommodative Stance with 5-1  Vote	Accommodative Stance with 5-1  vote.	Focus on withdrawal of  accommodation
*Our Subjective assessment of stance	Extremely Dovish	more nuanced in acknowledging  inflation risks and more cautious