Mr Abheek Barua’s Quote on Monetary Policy

HDFC Bank :: Mr Abheek Barua's Quote on Monetary Policy

The RBI kept its policy rate unchanged at 4%, as expected, and continued to keep its policy stance accommodative. Some sections of the market had anticipated the central bank to act on the rising surplus liquidity in the system in light of the increasing inflationary pressures. However, the absence of any major liquidity absorption measures in the midst of a prolonged inflationary episode and indeed the upward revision of both the RBI’s growth and inflation forecasts might be somewhat puzzling. However, it could mean that the RBI is a) still cautious about the durability of growth given the myriad uncertainties related to growth, b) it sees inflation as principally a supply side-problem amenable to supply rather than monetary intervention, c) it is willing to tolerate higher inflation as long as growth impulses become firmly entrenched and 4) it perhaps expects some natural moderation in liquidity as the government usually goes into collection mode in the last quarter of the fiscal. In fact, given its emphasis on growth revival and the suggestion that there is still some more space left for monetary support, another 25-50 basis point cut in 1H CY2021 cannot be ruled out.