The RBI Monetary Policy Committee (MPC) presented the sixth bi-monthly Review today, where they held their horses on policy rate action. Market reaction was muted; bond yields came down marginally (i.e. prices went up) and equity indices came down a bit. Given the volatility of the recent past, when equity indices have been moving by hundreds of points on a day and bond yields swaying by 10 to 20 basis points, this may be called a non-reaction. This is how it should be.
A policy review is a review and need not necessarily translate to rate action. It is more of a guidance and gives a clue on the thought process of the committee. For the markets, a palpable reaction is understandable when there is a departure from expectations, like in February of last year when the stance on policy rates changed from accommodative i.e. inclined towards rate cuts, to neutral i.e. would change rates only if there is something significant. Let us now look at some of the details of todays review and the forward guidance.
Guidance from the review