The Reserve Bank of India (RBI) will announce monetary policy on October 9. Meanwhile, Centrum feels that the Monetary Policy Committee (MPC) will most likely opt for a status quo given the August headline inflation of 6.7 percent is above the tolerance limit. The focus of RBI will be to keep liquidity in surplus in order to maintain the low cost of capital, said the brokerage.
During the May meeting, the RBI MPC had acknowledged that tapering of overall growth momentum has picked up sharply. However, few indicators including petrol consumption, exports, GST collections, e-way bills, and the unemployment rate had elucidated a slowdown in the economy.
With retail headline inflation above the tolerance limit for the 5th consecutive month in August, the RBI will be more focused on keeping that under-control, explained Centrum.
There are also chances of RBI giving out estimates for inflation in H2FY21. The motive for this will be to guide the market, and keep alive the hopes for a rate cut next year, the report added further.
With three new external MPC members in the upcoming policy meeting, the Street will be interested to gauge its inclination towards growth-inflation dynamics and to check if they are hawk or dove.
In the previously-held MPC meeting, the RBI had indicated that it wants to improve the liquidity in the system. The same motive is expected to be followed this time as well.
There will be some prominent headwinds in the bond market considering factors like higher than expected government borrowings, uncertainty on inflation trajectory, and rising fiscal trepidations at Centre and state level.
"The bond yields at the longer end will demand RBI's continuous intervention amidst such headwinds. Their clear intent to anchor the yield curve via
unconventional measures are most likely to keep longer end rates in check," the report said.
(Edited by : Jomy)