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ICRA Research Report
The Monetary Policy Committee hiked policy rates by 90 basis points in May-June 2022 following the surge in inflation readings. Amid the mixed tone of the MPC members’ minutes, we continue to expect additional, frontloaded policy rate hikes of 35 bps and 25 bps in the August 2022 and September 2022 policy meetings, respectively, followed by an extended pause to gauge the impact on growth.
As a percentage of net demand and time liabilities, net systemic liquidity surplus has eased to a 32-month low of 1.2% as on June 22, 2022 from ~4.4% in early-April 2022.
The rapid drop is quite surprising given the Reserve Bank of India’s assurances of a calibrated normalisation in liquidity. Although the gap between the repo rate and the weighted average call rate has narrowed, it remains high, indicating that liquidity conditions are comfortable.
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