India’s monetary policy is gradually transforming from nuanced guidance towards a normalization nudge. This subtle shift is necessary as the ‘shore is not only visible, but it is also near’. So, while the status quo was maintained on record low policy rates as well as the accommodative policy stance, calibration of liquidity surplus acquired incremental focus. While this does not tantamount to tightening, it would curb the liquidity free float and guide short-term money market rates towards the policy rate corridor. We believe this would act as a sine qua non for the first leg of interest rate normalization that would involve a 20 bps increase in the reverse repo rate in Dec-21, followed by another 20 bps upward adjustment in Feb-22. The second stage of interest rate normalization would begin with a 25 bps hike in the repo rate in Q1 FY22.
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