The RBI was clear about the fact that it would be careful of not rocking the boat in any way. RBI Governor went to the extent of pointing out that we are close to the shore but there is a life beyond the shore too. RBI walked the talk with its actions by not changing the policy rates – both the repo as also the reverse repo rates. Even the stance of the policy remained accommodative with no change in the language. This means that RBI vows to stay accommodative for as long as necessary to revive and sustain growth on a durable basis. The comfort to the RBI is possibly derived from the evolution of the inflation trajectory, that appears to be much better than its own anticipation. This also led RBI to bring down the year’s Headline CPI average estimate down by 40bps from 5.7% previously. With growth conditions expected to be getting relatively better, RBI is trying to formulate a path to come out of the extraordinary accommodation during COVID-19. In my opinion, the glide path has been initiated with the G-sec bond buying programme dialed back to NIL, and the Variable Reverse Rate Repo (VRRR) auction size enhanced to INR 6 trillion by early December. The RBI also has opened itself up to increasing the VRRR duration to 28 days if need be. The actions on liquidity is expected to bring up the overnight money market rates to above the current reverse repo rate of 3.35% and we think that RBI will then be open to adjusting the Reverse repo rate to reduce the size of the corridor. Overall, we think that RBI has kept the room open for a reverse rate repo increase in the upcoming December policy. No changes are envisaged to the Repo rate in the current fiscal and can only be addressed in FY 2022-23 after a thorough understanding of the evolving growth-inflation mix.
