Pause and reflect

Having delivered 125 (basis points) bps of repo rate cuts, 1 per cent of cash reserve ratio (CRR) cut, a slew of steps for easing liquidity through openmarket operations (OMO) purchases, FX buy/sell swaps and measures aimed at regulatory easing in 2025, we expect a quiet start to 2026 from monetary policy corridors.

- AASTHA GUDWANI

Not to imply that we don’t need more monetary policy support, but February 6 may not be the best time for it.We believe it’s time to pause and reflect on measures already announced, market reaction to those measures, evaluate the ask for more and balance it with the best time to deliver. On December 5, he MPC announced a 25 bps policy rate cut, RBI committed to ₹1 trillion of OMO purchases and a $/₹ buy sell swap for $5 billion (3-¥ tenor)- effectively overdelivered vs market expectations. In normal times, this would have resulted in IGBs rallying, but about 2 months later we are +18bps/+23bps/+27bps on 2-Y/5-Y/10-Y IGBs - that too with OMO purchases of ₹4.2 trillion and total buy sell swaps of $25 billion and multiple long dated VRR operations. So, while the RBI is arguably doing all it takes to be there for markets, it seems that the pain is deeper than what words can heal.