The new grammar of liquidity proposed by RBI is a challenge for itself as it now needs to demonstrate the same dexterity in its liquidity stance which can tougher as forecasts of currency withdrawal by the public, of dollar flows, and of government‘s unspent cash surplus can at best be approximate, says Latha Venkatesh of CNBC-TV18.
In its sixth bi-monthly Monetary Policy review, the Reserve Bank of India kept policy rates unchanged after going ahead with a 25-bps cut just three weeks ago, suggesting government‘s annual budget at the end of this month may hold the key to future action.
Sonal Varma, economist at Nomura India, thinks everyone is overplaying the role of commodity price fall on CPI considering it is largely a non-tradable basket because it has food and services in it. Hence the impact is rather low.
"We expect CPI inflation to moderate further in February, driven by a fall in food price inflation. However, the core inflation is expected to remain elevated," Credit Suisse chief economist Robert Prior-Wandesforde said in a note today.
In an exclusive interview to CNBC, RBI governor Raghuram Rajan said global central banks need to recognise the spillover effects their monetary polices have on emerging markets. On the issue of inflation, which both the government and RBI continue to grapple with, Rajan said setting a target was the responsibility of the government.
In doing so, it cited a "glide path" towards lowering the consumer price index (CPI) below 8 percent by next January and 6 percent a year later -- targets that were laid out in sweeping proposals released last week to revamp the way monetary policy is conducted in India
The RBI is likely to continue address frictional liquidity concerns through a combination of term repos and open market operations to ensure adequate flows to productive sectors, says ICRA.
Though this rate hike has not come as a complete surprise, but it is difficult to understand what is going through RBI‘s mind in terms of inflationary process, feels Samiran Chakraborty, Hd-Research, StanChart Bank.
The multi indicator approach required the monetary policy to be set on the basis of growth targets as well as inflation targets though predominantly inflation targets.
It says that inflation target must be set at 4 percent plus or minus percent and the inflation aim must be set in a frame of a two year horizon.
We expect the repo rate to stabilise at 8 percent until more clarity emerges on the monetary policy framework from the Urjit Patel committee report, says Rohini Malkani, Citigroup.
We expect 10-year yields to soften to 8.5 percent levels and lower volatility in bonds, says Rohini Malkani, Citigroup.