New Delhi, Feb 9 As the RBI embarks upon the rate cut cycle, it can be expected that more cuts are also on the cards, while the timing can be debatable, according to a Bank of Baroda note.
The RBI MPC unanimously lowered the repo rate by 25bps from 6.5 per cent to 6.25 per cent. Stance was kept at neutral to allow the MPC flexibility on future path of policy action.
“Cumulatively, we are pricing in 75bps cut in this calendar year. The April policy would review the economic situation and depending on the growth-inflation dynamics could opt for another cut or change in stance,” said Sonal Badhan, economist, BoB.
At the time of next rate cut, we also expect change in stance from neutral to accommodative, said the note.
This is the first rate cut since Covid-19 period. Stance of the monetary policy was retained at neutral, also by a unanimous vote. On liquidity, the central bank has urged banks to lend in the un-collateralised call market, instead of parking that money with the RBI.
Forward contracts have been introduced in government securities. This will enable long-term investors such as insurance funds to manage their interest rate risk across interest rate cycles.
They will also enable efficient pricing of derivatives that use bonds as underlying instruments. This is expected to improve liquidity to some extent, according to the BoB note.
SEBI-registered non-bank brokers (on behalf of their clients) will now be able to access NDSOM platform. This decision has been taken to widen accessibility, which until now was available to regulated entities and to the clients of banks and standalone primary dealers.
“The RBI will set up a working group, with representation from various stakeholders, to undertake a comprehensive review of trading and settlement timing of financial markets regulated by the Reserve Bank. The Group will submit its report by April 30,” the note said.
The Central Bank will also introduce additional Factor of authentication (AFA) in cross-border ‘Card Not Present’ transactions. This aims to provide safety for online international transactions using cards issued in India.
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