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Compared to the last monetary policy, this time macro backdrop looks much better. Crude oil prices have come down, Inflation has cooled off, global interest rates are significantly lower and more importantly the US FED doesn’t look that hawkish now.
The RBI can also take comfort from the sharp fall in core CPI inflation which is now getting closer to the RBI’s target of 4%. We expect the RBI to maintain status quo on rates. However, given the significant improvement in the macro picture there is a case for the RBI to become less hawkish in its statement.
In this policy, we would also expect the RBI to provide clarity about its liquidity management strategy which has been little confusing over the last two months. Despite banking system liquidity being in large deficit, the RBI is not conducting any variable rate repo operations. This in turn has pushed the banking system to borrow at a higher interest rate under marginal standing facility (MSF).
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