RBI delivered a status quo policy

As expected, the RBI delivered a status quo policy, keeping both its stance and policy rate unchanged. The central bank also kept its growth and inflation forecast unchangedfor FY24 continuing to sound cautious on inflationary risks. 

More importantly, given the pulls and pressures on liquidity conditions in the coming months, the RBI did not announce any durable liquidity absorption measures for now (like CRR hike) in line with the expectations. This signals the RBI’s preference for tighter liquidity conditions going forwarddriven both by inflation risks and financial stability concerns as liquidity tightens globally. This also aligns with the central bank’s reiteration that they want to anchor inflation at 4% and keeping it below the upper band of the target range (at 6%) is not enough. 

10-year yield is likely to trade higher with the door being opened for OMO sales. Moreover, elevated US yields could also continue to exert pressure in the near-term. For macro indicators, expecting September inflation print at 5.3% and full year to average at 5.4%.