Meeting of the February MPC: analysts see 25 bps cut like RBI supports liquidity

Banks and foreign ranges see the Rbi Latest measures to facilitate liquidity conditions as having prepared the land for a rate reduction cycle At the next February 7 meeting MPC.

Most foreign banks and brokerage houses expect the RBI to be reduced for a reduction of 25 base points on February 7. RBI has maintained the rate of unchanged policy at 6.5% since February 2023.

Noting that the improvement of liquidity also puts the pace to an improvement in transmission, while approaches to the examination of MPC rates in February, Radhika Rao, Executive Director and Senior Economist DBS Group Research said: “We Let us wait for a reduction of 25 bp at the February meeting, marking the start of the shallow cut rate. ”

She stressed in a research note that the new members of the Monetary Policy Committee – three external members joined on October 24, the new governor took office on December 24, and the sub -Governor of January 25 – openly Interrupted few political parties, although recent actions suggest that the path is paved for monetary relaxation.

Aastha Gudwani, chief economist of India, Barclays Research, said that “by announcing these measures to respond to liquidity problems, RBI, in our opinion, establishes a stadium for monetary relaxation at the next political meeting from February ”.

Currency volatility measures

Unless surprises / shocks in the budget of February 1, Barclays Research continues to expect that the RBI MPC announces a drop in the rate of replenishment according to the policy of 25 points at the meeting of February 7, as well as that more non-anti-tail measures to resolve the conditions of inner and smooth liquidity inr inr volatility.

“With these measures, the RBI has clearly indicated that it is vigilant of the market conditions and is ready to meet the needs of the system, once the dust denounces,” added Gudwani.

Upasana Chachra, chief economist of India, Morgan Stanley Research said: “We expect the RBI to start the rate of rate of rate with a rate drop of 25 BPS, reflecting the current dynamics of growth interior-inflation ”.

Shallow rate reduction cycle

Morgan Stanley Research expects the RBI to get into a low -profound rate relaxation cycle. The confluence of the dynamics of inner growth-inflation-that is to say, lower than expected growth and a moderating inflation trajectory-The rate of justification of the justification rate to support growth, said Chachra in a research note.

However, this is juxtaposed to an unfavorable external environment, as evidenced by the strength of the dollar, the higher position of the Fed and the volatility of world capital flows, which leads to monetary weakness.

“Therefore, in our basic case, we continue to expect a slightly deep rate of a cumulative rate of 50 sbps, from February,” added Chachra.

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In addition, Morgan Stanley Research expects the central bank to add sustainable liquidity and closely monitor currency to limit excessive volatility.

Liquidity measures

The RBI introduced a series of measures on Monday to facilitate the liquidity crisis in the banking system (and basic balance).

The steps include plans for a) Purchases of operations on the open market worth 60,000 crosses in three tranches from January 30 (signals for mixing tenor sustainable liquidity infusion); b) auction with a variable rate of 56 days (VR) worth 50,000 crores of ₹ on February 7 (same day as the rate meeting); c) USD / INR Buy / Sell exchange auctions of $ 5 billion for a six -month tenor on January 31 (will cover periodic outings).

• Read: RBI doubles on liquidity injection measures

The measures taken previously included a mixture of daily VRR auctions and OMOS on the secondary market. Sales of persistent non -sterilized dollars to defend money and seasonal engines had amplified the compression of liquidity, the deficit widen strongly to 3 Lakh crores during recent sessions.