fbpx
  Previous   Next
HomeBusinessReverse Repo Hike Can Wait, Says SBI

Reverse Repo Hike Can Wait, Says SBI

The monetary policy review is slated for December 6-8.

It is widely expected that RBI’s MPC will maintain a status-quo in key lending rates.

At present, the MPC of the central bank has maintained the repo rate, or short-term lending rate, for commercial banks, at 4 percent.

Consequently, the reverse repo rate was kept unchanged at 3.35 percent.

Besides, system liquidity remains in the surplus mode with the average daily net absorption under the liquidity adjustment facility (LAF) at Rs 7.6 lakh crore in November 2021.

However, the RBI has made a calibrated progress towards liquidity normalisation since the October policy with amount parked in overnight fixed reverse repo declining to Rs 2.6 lakh crore from Rs 3.4 lakh crore at pre-October policy.

“Against this background, we believe the talks of a reverse repo rate hike in the MPC meeting may be premature as RBI has been largely able to narrow the corridor without the noise of rate hikes and ensuing market cacophony,” the report said.

Furthermore, the report cited that RBI is not obliged to act on reverse repo rate only in MPC.

“Also, change in reverse repo rate is an unconventional policy tool that the RBI has effectively deployed during crisis when it moved to a floor instead of the corridor.”

“We believe, the RBI may deflate the hype around reverse repo hike in monetary policy by explaining the virtues of using reverse repo change as a pure liquidity tool and not a rate tool.”

Additionally, the report pointed out that US Fed has indicated accelerating the bond tapering program, thereby, ending it earlier than anticipated.

“Against this background, delaying normalisation measures is prudent in the current situation which would also give time for economic recovery to strengthen further.”

“Also, rate differential needs to emerge between ‘VRRs’ of different maturities so that Banks are incentivized to park funds in the longer term ‘VRRRs’. This can be achieved by reducing the amount available under auction in 7 days and reallocating the same to 28 days.”
Related Tags :

LEAVE A REPLY

Please enter your comment!
Please enter your name here

More News

Assam CM’s Dig At Rahul Gandhi Says Rahul Gandhi Looks Like Saddam Hussain

Assam chief minister Himanta Biswa Sarma in his latest dig at Rahul Gandhi said that the Congress leader's looks have changed and he looks...

Nearly 75% Twitter Employees Layoffs In A Month, Will Elon Musk’s New Policy Be Able To Assure The Employees

After cutting nearly 75% workforce of Twitter in less than a month since the takeover, Elon Musk is now reported to have kept the...

Condition of Hospitals In Bihar Is Worst: Supreme Court

The Supreme Court on Monday (21 Nov) came down heavily on the Government of Bihar for allowing persons without the necessary qualifications to discharge...

RELATED NEWS

Keep Your Money Safe, Jeff Bezos Warns Economic Recession

Amazon founder Jeff Bezos recently warned consumers and businesses that they should consider postponing large purchases during the holiday season as an economic recession...

G20 Presidency Is A Proud Occasion For Every Indian: PM Modi

Indonesia President Joko Widodo handed over the G20 Presidency to India at the closing ceremony of the 17th intergovernmental summit in Bali on Wednesday....

Unmanned Trains Will Run Soon In India

Bharat Electronics Ltd (BEL) has signed an agreement with Delhi Metro Rail Corporation Ltd (DMRC) to jointly develop an indigenous communication-based train control system...