The Reserve Bank of India’s buyback rate is expected to remain unchanged during fiscal year 22, Emkay Global said in a report.
A lower buyback rate, or a short-term loan rate for commercial banks, will lower the cost of interest on auto and home loans, ushering in growth.
However, a lower buyback rate could also trigger inflation.
Earlier this month, the central bank’s Monetary Policy Committee (MPC) voted to keep the buyback rate, or short-term loan rate, for commercial banks at 4 percent.
Also, the reverse repurchase rate was unchanged at 3.35%, and the marginal permanent facility (MSF) rate and the ‘bank rate’ at 4.25%.
The MPC result was widely expected as India suffers a massive increase in Covid-19 infections.
“We do not see any action on rates in fiscal year 22. We believe that the RBI’s focus on keeping term premiums low will accelerate as global financial conditions begin to tighten gradually throughout the year,” Madhavi Arora said. , Senior Economist, Global Financial Service on the report.
“We also expect core inflation to remain high, to top the headlines, and to average comfortably above 6 percent in fiscal year 22. That said, the RBI can still take comfort in the fact that headline inflation may still average below of 6 percent in fiscal year 22 and, therefore, could justify its accommodation policy.
On bond yields, he cited that in the short term, “we are bond neutral amid active central bank support anchored in the 10-year benchmark paper.”
“However, we see yields gradually increasing in an orderly and gradual manner in H2FY22.”
“We expect the yield curve to flatten down and see a 10-year benchmark yield in the 6-6.40 percent range for the remainder of fiscal 22.”
–IANS
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(Business Standard staff may have only modified the title and image of this report; the rest of the content is automatically generated from a syndicated feed.)
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