Mr.Roy – DVP- Equity Strategist, Angel One Ltd
The RBI is likely to keep the key policy rates unchanged in its fourth bi monthly MPC meeting for FY2022 on Friday. While the RBI is expected to keep rates on hold and maintain their accommodative stance as of now they are expected to signal that they will start moving to a less accommodative stance at some point of time in the near future which would be in line with market expectations. The recent surge in energy prices globally is one of the major concerns as sustained higher fuel prices can push inflation above the 6% mark which will be above the RBI’s comfort zone. While inflation has come down from above 6% to 5.3% in August 2021 the RBI in its last MPC meeting had projected inflation to average 5.8% in Q4FY2022. However the RBI’s projection of 5.8% inflation for Q4FY22 could be under threat in case energy prices remain at current elevated levels.
Therefore given the surge in global energy prices and the excess liquidity in the system, the RBI is expected to prepare the markets for gradual normalization of liquidity in the system post the festive season. Moreover with fiscal deficit at 31.1% of the full year target till Aug’21 as against 109.3% in the first five months of FY2021, the RBI might also prepare the markets for a gradual paring in its purchases of G-Sec under the GSAP program going forward given the increased likelihood of lower than expected G-Sec supply in the second half of the year.
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