RBI has done more than the market had expected

We were all worried about inflation being a big issue which could restrict RBI and that uncertainty has been taken off by the governor, says Jayesh Mehta, country treasurer, Bank of America.

On RBI policy & on-tap TLTROs
The biggest statement by the governor today was “ it takes at least two views to make a market but these views can be competitive without being combative”. The rest of the action follows that statement. On the OMO side, the market feedback had been that we have almost Rs 35,000-crore plus auctions every week, Rs 10,000 crore OMO does not make sense. The market feedback has been well taken by RBI.


On state development loans (SDL), it was said very categorically that it is a one-off and that was required. We are also seeing something on GST coming through and of course the spreads on SDL were actually higher than corporate bonds. So, that needs to get corrected and that was a very welcome step. Focus will be on growth and inflation projection for the next year is definitely lower. We were all worried about inflation being a big issue which could restrict RBI and that uncertainty has been taken off by the governor with a very clear focus and actions.

It is only not the focus, it is not only verbal, it is verbal with the action and there is no reason not to believe that if and ever required, there will be more action. But this is good enough to start with. TLTRO on tap is a very positive thing. I think they have done more than what the market expected.

Is the RBI looking only at the debt market and not worrying about asset inflation?
Globally, we are seeing a similar wave. The Governor is very focussed on making sure that borrowing programmes happen effectively, sovereign rates remain low and the transmission of that low sovereign rates happens to the real economy.

At this juncture, he can choose to ignore the rest of the things because that is the priority he has set up and therefore we are still going on with OMOs which is negating the naysayers that you cannot do OMO because there is liquidity and there could be inflation. He is purely focussed on the monetary policy side of it. There will be certain concerns but at this juncture he can choose to ignore that. That is the way I would look at it but as I said, globally it is the same situation.