What is your first take on the RBI credit policy announcements? What do you make of the liquidity measures that have been announced by the governor today?
The liquidity measures were pretty much in consonance with what the market had been asking for. For instance, some kind of an open market operation calendar has been announced which takes the uncertainty out of how much the RBI will actually buy from the secondary market. That will bring a level of stability to yields. It clearly re-emphasises the RBI’s focus on yield management. By yield I mean company security yields which is of the risk free benchmark.
This is prudent and this is something that they did not do right after the Budget when they were trying to bring yields down to below 6% when there was an upward pressure based on the government borrowing programme announcements. This time, it is a very sensible policy of letting yields evolve around a fair path justified by fundamentals and with the assurance of constituents like infusion through this GSAP calendar, this is broadly positive and slightly dovish for the bond markets.
The other thing which I liked about it was the explicit recognition of the fact that there is so much uncertainty that harder decisions might not be that easy to take on the wake of a surge in infections. So, they did best under the circumstances and best under the sort of projections that they have made. It is a fairly sensible recognition of the fact that things could be very different from the way they have been projected to evolve given the current base of information.
