1:32 PM Aug 23

COMMENT:: Short-term rates may see some upward pressure due to ICRR steps

“As expected, RBI maintained status quo on policy rates. It increased the headline CPI projection for FY24 to 5.4% from 5.1% earlier on account of current increase in headline inflation, and re-emphasized its intention of bringing inflation to a level of 4% on a durable basis. The liquidity surplus is around Rs 2 lakh crore presently, as a result of return of 2000 denomination rupee notes to the banking system, withdrawn earlier. Therefore, the RBI introduced a temporary incremental CRR (ICRR) of 10% on incremental NDTL between mid-May and July 2023, and it will be reviewed on September 8, 2023—ahead of the festival season.

The central bank also introduced a transparent framework for resetting of interest rate for floating rate loans, which will bring some uniformity, and is a positive step for borrowers. Given the recent inflationary pressures in India (due to higher vegetable and cereal prices), elevated global monetary policy outlook, and RBI’s commitment to bring down domestic inflation to 4%; rate cut expectations have been further pushed back and will depend on evolving data. Short term rates may see some upward pressure in the near term due to ICRR steps. We are presently positive on the medium to long term part of the yield curve.”

– Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life