Monetary policy decided scientifically, rationally; not to satisfy market ego: SBI Ecowrap

The State Bank of India (SBI) research report Ecowrap called out market watchers and said that the repo rate impact on the CPI inflation would have been unyielding beyond a point. It also said that the monetary policy formation cannot be termed ‘ego-based’ and that it is always pitched rationally and scientifically.

“Market watchers need to remind themselves that magic lies in the hands of the magician, not in the wand! Monetary policy formation by any central bank can hardly be termed as ego based; it is always reflective of abundantly pitched rationale and science of the ensemble, with a twist of artistic manoeuvre thrown liberally. Monetary policy criticism sans collaborative research thus seems to be the bane of most myopic observations, reading the print while losing the plot wholly!” stated the report.

CPI inflation, announced on Wednesday, was almost at a 16-months low of 5.66 per cent in March, compared to February’s 6.44 per cent. CPI inflation for FY24 was projected at 5.2 per cent, with Q1 at 5.1 per cent, Q2 at 5.2 per cent, Q3 at 5.3 per cent, and Q4 at 5 per cent.

The report added that RBI’s refusal to cower to monotonous chants of rate increase, not handing over predictable news or favoured outcome has caused despair writ large in some minds.

“The calibrated exit from the chakravyuh of Fed, sidestepping to create own rate pivot as we had postulated sometime back, appears to have had a meaningful breakthrough, in particular when seen through the larger prism of other central banks’ actions distancing themselves from the ‘follow the herd’ mentality,” stated the report. Out of 147 countries, 90 held their central bank rates, 9 countries increased their rates and 48 decreased the rates.

It said that RBI has made a clear distinction between policy strategy and policy stance and asserted that these can coexist simultaneously. “While it has kept the stance same as ‘withdrawal of accommodation’ to calibrate liquidity and ensure that government borrowings face no disruption, its strategy has been changed by hitting the pause button on rate hike. The policy strategy may still indicate rate adjustment to quell inflationary expectations, should inflation surprise on the upside beyond tolerance,” it added.

The SBI report added that they believe RBI has hit the pause button as inflation trajectory looks below 6 per cent for the rest of FY24, while deftly managing liquidity in the system.

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