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RBI Monetary Policy: Most expectations met but extension of HTM a bit negative, says UTI AMC's Amandeep Chopra

Updated : February 05, 2021 12:39 PM IST

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) kept the repo rate unchanged in the sixth and last bi-monthly monetary policy meet for the financial year 2020-21, Governor Shaktikanta Das said on Friday. With no change this time as well, the repo rate currently stands at 4 percent. The reverse repo rate has been maintained at 3.35 percent.

Reacting to the policy, Amandeep Chopra, Group President & Head-Fixed Income at UTI MF said that most of the expectations have been met by RBI, but extension of held-to-maturity (HTM) is a bit negative.

“When you look at the bond markets, clearly they went into the policy with very high expectations and that is one of the reasons why you did not see a very sharp spike in yields post the Budget. I would say that most of the expectations have been met; the only disappointment has been somewhat with HTM. I think the street was expecting at least 4 percent and maybe a bit longer than 1 year, but RBI has gone ahead with just continuation of the previous extension that was provided,” he said in an interview to CNBC-TV18.

He said that there is a strong expectation in market of a more specific open market operations (OMO) announcement. "I think there was a strong expectation from market participants that there would be a more specific announcement around the OMO. But I would not read too much into today’s reaction," he said.

Ajay Srivastava, CEO of Dimensions Corporate Financial Services hailed the RBI's announcement. However, he said that the biggest gainers of yield curve management are the borrowers.

"The RBI has done a wonderful job so far. I think that RBI has highlighted what is the big risk in the market today which is inflation. Having said that, inflation is a big risk for savers. Given the way the yield curve is being managed, they are the worst hit because the benefit is going all to the borrower’s inspite of inflation being as high. Nobody can argue the fact that when the petrol diesel prices are what they are today, the pass through is about to come in this quarter. You have already seen the results, the cross push is now going to push companies to go for price increases in this quarter. So, the big gainers of the yield curve management are the borrower’s and the big losers are the savers in the system," he said.

However, he believes that direct investment in the government securities is positive for savers. "For the savers, a little bit of a balm I think is the direct investment in the government securities. I think it is one of the greatest steps I have seen for a long time to come. However, I don’t think AMCs and banks realise how big a danger it is for them. It will start small, but when it becomes big, it is going to be a big threat to money mutual funds as well as the banks who are sitting on the lazy money at 3-4 percent and enjoying the spread,” he said.

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