Amid all the serious analyses of the Reserve Bank of India’s monetary policy committee (MPC) meeting, DSP Investment Managers Pvt Ltd, a mutual funds investment company, has given its take through a series of memes.
“Monetary policy formulation has been very tricky in the past few years. As the world exits the accommodation phase, all central banks face challenges to exit in a phased manner,” the DSP report said.
The committee was likely to change the policy stance from accommodative to neutral, according to analysts. The central bank has been in an accommodative stance for the last two years to support the economy during the Covid-19 crisis.
RBI remains accommodative — only in letter but not so much in spirit, DSP Mutual Funds said in its previous report.
RBI recently introduced the Standing Deposit Facility (SDF), similar to reverse repo, to absorb liquidity from commercial banks without giving government securities in return.
Referring to the RBI’s low G-sec holding, the report said, “RBI’s size of G-sec holdings does not seem as an incentive for SDF.”
“While RBI did not hike the reverse repo rate, the introduction of SDF practically means hike by 40bps,” it argued.
“Inflation is now projected to be higher and growth lower than the assessment in February. Economic activity, although recovering, is barely above its pre-pandemic level,” RBI Governor Shaktikanta Das had said at the MPC meeting.
The DSP report noted that the RBI has increased its CPI projections by a whopping 1.20 per cent for FY 2022-23.
“We take the CPI projection increase as a signal of regime shift from RBI. It means that going forward RBI may take more hawkish decisions with similar data points,” the report said.
RBI had committed that it would “telegraph” any changes in policy, the report noted.
“In the sequence of priorities, we have now put inflation before growth,” Das said.
“In our view, RBI has had a neutral stance for the past six months,” the DSP mutual funds report said in its turn.