The Monetary Policy Committee of the Reserve Bank of India has been keeping key policy rates the same fourth time in a row and expressing its commitment to stuck liquidity depicting its stance as a hawkish policy. Showing their concerns on the same, the bond market investors reacted driving the 10-year benchmark bond yield to a six-month high of 7.3412 percent after RBI announced it could allow the open market sales of bonds to manage liquidity. Prior to this announcement made by the governor of RBI Shaktikanta Das, the market sales of bonds were trading at 7.2197 percent. Unanimously the Monetary Policy Committee came with a decision to keep the repo rate the same after five out of six members voted to keep the policy the same at withdrawal of accommodation.
RBI To Keep Bond Sales Unchanged
The Reserve Bank of India has been keeping the forecast of inflation unchanged in the current financial year at 5.4 percent and kept its economic growth projection unaltered at 6.5 percent despite the risk of slowing global growth. The governor of RBI, Shaktikanta Das said, “We have identified high inflation as a major risk to macroeconomic stability and sustainable growth. Accordingly, our monetary policy remains resolutely focused on aligning inflation to the 4% target on a durable basis,”
In August, the last police retail inflation reduced to 6.83 percent from 7.44 percent in July. Core inflation which does not include items such as oil and food, kept on losing momentum resulting in falling below 5 percent. The RBI expects inflation to fall in the next financial year to 4.5 percent. This statement was made in the half-yearly monetary policy report that was issued alongside the monetary policy review. RBI governor further added that the overall inflation forecast is under scrutiny due to some uncertainties from the fall in kharif sowing for crops like oilseeds and pulses, volatile global food and energy prices, and low reservoir levels.
Shaktikant Das further added, “I would like to emphatically reiterate that our inflation target is 4% and not 2-6%. Our aim is to align inflation to the target on a durable basis while supporting growth,” While experts and economists are predicting an extensive hiatus in the fiscal year. They do not expect any change in the policy rates till Q1 FY25 as RBI’s target of inflation to remain at 4 percent would not be met. Upasana Bharadwaj who is the chief economist at Kotak Mahindra Bank said “We maintain our call that the MPC will remain on a prolonged pause (well into FY2025), along with liquidity being kept close to neutral,”