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Today is the MPC day in India, and the policy announcement generates sufficient excitement for the money market participants whenever it is around the corner. We saw that for past few days the yields in the money market traded in a range with very slight murmurs that the central bank might act to curb the liquidity which is flushed through the system taking the overnight interbank rates in the market below the reverse repo rate. Any action on the rate front was not anticipated.
The policy was announced at 10:00 am today and it turned out that the fears of the market on the liquidity front was unfounded. The RBI statement said that it will remain accommodative as long as necessary – at least during the current financial year and into the next financial year, in order to revive growth on a durable basis and mitigate the impact of covid-19 while ensuring that inflation remains within the target going forward.
As for the outlook, CPI inflation is projected at 6.8% for Q3:2020-21, 5.8% for Q4: 2020-21. GDP growth is projected at -7.5% in 2020-21. All the MPC members voted unanimously for keeping the rate unchanged and continuing with the accommodative stance as long as necessary.
We ran a small exercise on the MPC statements which were issued this month and last month. The idea was to parse through the important words and see how many times they appeared in the policy text and if their frequency in the statement has changed. Some readers can contend that such context free investigation of particular words has no informational value. But still it is a crude way to mimic how big data algorithms would have read the policy statement devoid of any emotions.
|
Key words |
MPC Statement |
|
|
October |
December |
|
|
Liquidity |
3 |
3 |
|
Accommodative |
4 |
4 |
|
Growth |
9 |
10 |
|
Risk |
4 |
3 |
|
Inflation |
11 |
16 |
|
Global |
4 |
2 |
|
Covid |
8 |
5 |
|
Supply |
6 |
8 |
|
Demand |
8 |
7 |
|
Total word in policy |
1063 |
1335 |
The use of the word inflation has shown a 60% increase in usage whereas global and covid see a drop, apart from that policy statement is definitely more verbose than the last one. All this analysis apart markets and their algos have already given their verdict that they like what they read. Both equity and bond markets showed gains post the policy announcement.
In global news we will have the all-important NFP data released in the US today.