iNDICA NEWS BUREAU-
As the Reserve Bank of India (RBI) enters its rate-cutting cycle, further reductions are likely, though the timing remains a subject of debate, according to a note from Bank of Baroda.
The RBI’s Monetary Policy Committee (MPC) unanimously decided to lower the repo rate by 25 basis points, bringing it down from 6.5% to 6.25%. The stance was kept at “neutral,” allowing the MPC flexibility in determining future policy actions.
“We are anticipating a total of 75 basis points in cuts for this calendar year. The upcoming April policy review will assess the economic situation, and depending on the growth-inflation dynamics, another rate cut or a change in stance may follow,” said Sonal Badhan, economist at Bank of Baroda.
The next rate cut, if implemented, could also come with a shift in the monetary policy stance from neutral to accommodative, the note suggested.
This marks the first rate cut since the COVID-19 period. The decision to maintain a neutral stance was made unanimously, and on liquidity, the RBI encouraged banks to lend in the uncollateralized call market rather than parking funds with the central bank.
Additionally, the RBI introduced forward contracts for government securities, which will help long-term investors, such as insurance funds, manage interest rate risks across different cycles. These contracts are expected to improve liquidity by enhancing the pricing of derivatives that use bonds as underlying assets, according to the Bank of Baroda note.
In a move to increase accessibility, SEBI-registered non-bank brokers, acting on behalf of their clients, will now be able to access the National Securities and Derivatives Exchange (NDSOM) platform. Previously, this platform was limited to regulated entities and the clients of banks and standalone primary dealers.
The RBI also announced plans to form a working group, composed of various stakeholders, to conduct a comprehensive review of the trading and settlement timing of financial markets regulated by the central bank. The group is expected to submit its report by April 30.
Lastly, the RBI will implement additional factors of authentication (AFA) for cross-border “Card Not Present” transactions to enhance the security of online international payments made using cards issued in India.
(Photo courtesy: IANS)
