YES Bank Limited: Views of Mr. Indranil Pan, Chief Economist – YES Bank on the RBI monetary policy
Amidst the ‘tectonic’ shifts in global conditions, RBI has taken more than one step towards preparing the market for an eventual increase in the repo rate. This position is made clear as the governor indicated that the order of preference for RBI now is inflation, growth and financial stability, rather than the post COVID-19 preference of preserving and supporting growth momentum. The process of neutralizing monetary policy had already started with withdrawal of ultra-comfortable liquidity. In this policy, the operative rate was increased by 40bps with the institutionalization of the Standing Deposit Facility. With this, RBI has almost buried the reverse repo as an instrument. Towards the objective of an orderly completion of the government’s borrowings, the HTM limit was increased by 1% to 23%. Overall, we now expect the stance to be made ‘NEUTRAL’ in June and the first repo rate increase can come through in August.