Hawkish or dovish – what am I? RBI Governor Shaktikanta Das’ riddle to media, ‘informed circles’ | The Financial Express

Hawkish or dovish – what am I? RBI Governor Shaktikanta Das’ riddle to media, ‘informed circles’

Although the Reserve Bank remains in absorption mode, we are ready to conduct LAF operations that inject liquidity as may be needed through our main operations, said Shaktikanta Das.

Hawkish or dovish – what am I? RBI Governor Shaktikanta Das’ riddle to media, ‘informed circles’
RBI MPC remains nimble and flexible in its liquidity management operations to meet the requirements of the productive sectors of the economy (Image PTI)

RBI Governor Shaktikanta Das in his post-MPC meeting address, wherein he announced a repo rate hike of 35 bps, threw a riddle at the media and ‘informed circles’ to decide whether the December policy is dovish or hawkish. “There is a lot of discussion in the media and in various informed circles about whether the MPC is hawkish or dovish. I leave it to you to decide whether the policy statement is hawkish, dovish or something else,” Das said.

System liquidity remains in surplus with an average daily absorption under the liquidity adjustment facility (LAF) of Rs 1.6 lakh crore in November. Since then, it has risen to Rs 2.6 lakh crore as on 5 December. “The overall monetary and liquidity conditions remain accommodative and hence, the MPC decided to remain focused on withdrawal of accommodation,” Das said.

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The Reserve Bank believes that in the period ahead, liquidity conditions are likely to improve due to several factors which would include moderation in currency in circulation in the post-festival period, pick up in government expenditure in the last few months of FY23 and higher forex inflows due to the return of portfolio investors. “I reiterate that the Reserve Bank remains nimble and flexible in its liquidity management operations to meet the requirements of the productive sectors of the economy. Therefore, although the Reserve Bank remains in absorption mode, we are ready to conduct LAF operations that inject liquidity as may be needed through our main operations,” Das added.

In doing so, however, the central bank will look for a durable sign of a turn in the liquidity cycle when banks draw down large part of their standing deposit facility (SDF) and variable rate reverse repo (VRRR) balances. “The Reserve Bank remains committed to flexibility and two-sidedness in liquidity operations, but market participants must wean themselves away from the overhang of liquidity surpluses,” the RBI governor said.

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The RBI governor said in his address that the MPC was of the view that further calibrated monetary policy action is warranted to keep inflation expectations anchored, break core inflation persistence and contain second-round effects. “These actions will strengthen the medium-term growth prospects of the Indian economy. Accordingly, the MPC decided to increase the policy repo rate by 35 basis points to 6.25% and to remain focused on withdrawal of accommodation, while supporting growth,” he added.

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First published on: 07-12-2022 at 11:56 IST