Globally, analysts remain uncertain about the appetite for low-interest long-term government bonds at a time when interest rates are poised to rise as global central banks tighten monetary policy to combat rising inflation. India as managed the yield curve far better than global peers, without a sharp rise in bond yields, which were largely stable in the 6 per cent to 6.36 per cent range, for the most part of 2021. True, India’s 10-year bond yield hit 7.47 per cent before cooling off a bit, after the unexpected Repo rate hike on 4 May 2022. But the recent surge in India’s bond yields was largely expected, given the rise in March 2022 CPI to 6.95 per cent. The moot point is the fact that the RBI has done a commendable job in managing the growth versus inflation conundrum. And full marks to PM Modi for giving a wide berth to the RBI, with no unwanted interference.
The Monetary Policy Committee (MPC) at its meeting on 4 May 2022, decided to increase the policy Repo rate under the liquidity adjustment facility (LAF) by 40 basis points to 4.40 per cent with immediate effect. Consequently, the standing deposit facility (SDF) rate stands adjusted to 4.15 per cent and the marginal standing facility (MSF) rate, and the Bank Rate to 4.65 per cent. The MPC also decided to remain accommodative while focusing on withdrawal of accommodation, to ensure that inflation remains within the target going forward, while supporting growth. These decisions align to achieve the medium-term target for consumer price index (CPI) inflation of 4 per cent, within a band of +/- 2 per cent, while supporting growth. The decision to raise cash reserve ratio (CRR) by 50 basis points to 4.5 per cent, to suck out excess liquidity of Rs 87000 crore will hold the banking system in good stead, going forward, given the rise in inflationary expectations.
No comments:
Post a Comment