The Reserve Bank of India (RBI) is expected to raise the repo rate in two consecutive policy meetings, while absorbing an additional Rs 2 lakh crore of liquidity, as per a report by ICICI Bank.
The Monetary Policy Committee (MPC) unanimously raised the repo rate by 25 basis points to 5.5 per cent and shifted its policy stance from ‘neutral’ to ‘calibrated tightening’ on Wednesday.
The policy statement clarified that the revised stance signals the likely direction of future rate decisions, whether a hike or a pause, rather than the extent of further increases.
“The term ‘calibrated’ suggests a more data dependent approach,” the lender noted in its report.
As per the report, the liquidity surplus is expected to narrow under the RBI’s ‘calibrated tightening’ stance as headline inflation approaches the upper end of the central bank’s tolerance band.
It further highlighted that the central bank has been using sell-buy foreign exchange swaps, open market operations (OMOs) and spot market interventions to manage excess liquidity, and these measures are likely to continue.
“We expect these tools to continue to be used even as sell-buy swaps have led to distortion in forward premia moving the most when WACR has been generally lower than policy rate and most other short-end rates have fallen,” it said. - ANI
