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US inflation might have hit a new 40-year high in January

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Economists have forecast that when the Labor Department reports January’s inflation figures Thursday, it will show that consumer prices jumped 7.3 percent compared with 12 months ago, according to data provider FactSet. That would be up from a 7.1 percent year-over-year pace in December and would mark the biggest such increase since February 1982.

US inflation might have hit a new 40-year high in January | Arab News

The Reserve Bank of India's monetary policy committee (RBI MPC) struck a surprisingly dovish chord yet again in this policy, choosing to keep all the key rates unchanged, including the Reverse Repo Rate.

The Repo-Reverse Repo policy corridor had widened since the onset of the pandemic, from the conventional 25 bps to 65 bps, as the RBI gave the much-needed liquidity boost in 2020 to manage financial stability during the pandemic. There was a wide consensus among market participants this time, that given the ongoing liquidity normalization by the RBI, it would hike the reverse repo rate by a modest 15 bps to perhaps even 25 bps. However, the RBI has chosen to stay on the sidelines for now, citing downside risks to the economy from the Omicron wave and therefore focusing more on ensuring a strong and sustainable economic recovery rather than fighting the current inflationary trends.

Also read - RBI’s dovishness delights stock market but risks lurk

On the inflation front, the RBI finds the current high prints of CPI inflation to be more on account of unfavourable base effects rather than any structural trend, and expects the CPI to moderate in the second half of FY 2022-23. What is noticeable is that the RBI, at this point in time, does not seem to be too concerned about the persistent high global oil prices (although it views this as a risk) and is also somewhat disregarding the widespread global concerns around inflation and the consequent rise in global interest rates, with central bankers of developed nations already tightening their belts and starting to raise policy rates.

In the policy statement, the MPC was silent on how the central bank proposes to manage the enhanced government borrowing programme that is going to kick in, starting April, pursuant to the expansionary Union Budget announced earlier this month. Debt markets will be wary about the increased supply in the new financial year, and will want clarity around the extent to which the RBI will support the borrowing through OMOs, G-SAPs, Operation Twist, etc. The RBI has probably put off this discussion for the April policy.

Also read: RBI takes another step towards policy normalisation by restoring liquidity framework

On the liquidity front, the RBI is satisfied that the liquidity injection measures undertaken by it over the past couple of years have achieved the desired objective of maintaining financial stability through the pandemic. While the RBI has already undertaken the Variable Rate Reverse Repo (VRRR) auctions to suck out excess liquidity from the money markets, it is now looking to rebalance liquidity on a dynamic basis. While on the one hand the accommodative stance continues (for now), on the other hand, given the ongoing liquidity surplus (though lower than in 2021), the RBI proposes to restore the pre-pandemic liquidity management framework. Towards this, it will use variable rate repos (VRRs) and variable rate reverse repos (VRRRs) of 14 days as the main liquidity management tools, with intermittent fine-tuning, and limiting the use of the fixed-rate reverse repo and MSF windows. Given this shift, the overnight rates are likely to settle somewhere near the repo rate.

Also read: RBI Monetary Policy | Governor Das’ crypto warning has a message for government

To summarise, the RBI is possibly buying some time before it decides about moving out of its accommodative stance and graduating towards a more directional change in interest rates. The debt markets have reacted positively to the pause in this policy; however, the celebration could be short-lived. The key ponderables in the near-term for the markets would be (a) how the RBI will manage the escalated borrowing in the next year and maintain an orderly yield curve, and (b) the global inflation trends and the Fed aggressive posture on the one hand and a soft and accommodative RBI on the other hand, and the likely impact on foreign debt flows as well as the Rupee. The enhancement of the Voluntary Retention Route limits may give some relief to the g-sec markets, in absence of any firm guidance on inclusion of Indian debt securities in the global bond indices.

RBI possibly buying time before moving out of accommodative stance: Unmesh Kulkarni of Julius Baer India

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On the liquidity front, the RBI is satisfied that the liquidity injection measures undertaken by it over the past couple of years have achieved the desired objective of maintaining financial stability through the pandemic.

RBI possibly buying time before moving out of accommodative stance: Unmesh  Kulkarni of Julius Baer India

The Reserve Bank of India's monetary policy committee (RBI MPC) struck a surprisingly dovish chord yet again in this policy, choosing to keep all the key rates unchanged, including the Reverse Repo Rate.

The Repo-Reverse Repo policy corridor had widened since the onset of the pandemic, from the conventional 25 bps to 65 bps, as the RBI gave the much-needed liquidity boost in 2020 to manage financial stability during the pandemic. There was a wide consensus among market participants this time, that given the ongoing liquidity normalization by the RBI, it would hike the reverse repo rate by a modest 15 bps to perhaps even 25 bps. However, the RBI has chosen to stay on the sidelines for now, citing downside risks to the economy from the Omicron wave and therefore focusing more on ensuring a strong and sustainable economic recovery rather than fighting the current inflationary trends.

Also read - RBI’s dovishness delights stock market but risks lurk

On the inflation front, the RBI finds the current high prints of CPI inflation to be more on account of unfavourable base effects rather than any structural trend, and expects the CPI to moderate in the second half of FY 2022-23. What is noticeable is that the RBI, at this point in time, does not seem to be too concerned about the persistent high global oil prices (although it views this as a risk) and is also somewhat disregarding the widespread global concerns around inflation and the consequent rise in global interest rates, with central bankers of developed nations already tightening their belts and starting to raise policy rates.

In the policy statement, the MPC was silent on how the central bank proposes to manage the enhanced government borrowing programme that is going to kick in, starting April, pursuant to the expansionary Union Budget announced earlier this month. Debt markets will be wary about the increased supply in the new financial year, and will want clarity around the extent to which the RBI will support the borrowing through OMOs, G-SAPs, Operation Twist, etc. The RBI has probably put off this discussion for the April policy.

Also read: RBI takes another step towards policy normalisation by restoring liquidity framework

On the liquidity front, the RBI is satisfied that the liquidity injection measures undertaken by it over the past couple of years have achieved the desired objective of maintaining financial stability through the pandemic. While the RBI has already undertaken the Variable Rate Reverse Repo (VRRR) auctions to suck out excess liquidity from the money markets, it is now looking to rebalance liquidity on a dynamic basis. While on the one hand the accommodative stance continues (for now), on the other hand, given the ongoing liquidity surplus (though lower than in 2021), the RBI proposes to restore the pre-pandemic liquidity management framework. Towards this, it will use variable rate repos (VRRs) and variable rate reverse repos (VRRRs) of 14 days as the main liquidity management tools, with intermittent fine-tuning, and limiting the use of the fixed-rate reverse repo and MSF windows. Given this shift, the overnight rates are likely to settle somewhere near the repo rate.

Also read: RBI Monetary Policy | Governor Das’ crypto warning has a message for government

To summarise, the RBI is possibly buying some time before it decides about moving out of its accommodative stance and graduating towards a more directional change in interest rates. The debt markets have reacted positively to the pause in this policy; however, the celebration could be short-lived. The key ponderables in the near-term for the markets would be (a) how the RBI will manage the escalated borrowing in the next year and maintain an orderly yield curve, and (b) the global inflation trends and the Fed aggressive posture on the one hand and a soft and accommodative RBI on the other hand, and the likely impact on foreign debt flows as well as the Rupee. The enhancement of the Voluntary Retention Route limits may give some relief to the g-sec markets, in absence of any firm guidance on inclusion of Indian debt securities in the global bond indices.

The debt markets were actually prepared for a reverse repo rate hike in this policy, and it was possibly an opportune time to do the “shift”. So was this a missed opportunity?

RIL invests Rs 50.16 crore in Bengaluru-based EV tech company Altigreen

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RNEL will buy compulsorily convertible preference shares of the Bengaluru-based company, which Altigreen is an electric vehicle technology and solutions company for commercial last mile transportation through 2-,3-, 4-wheeled vehicles.

RIL acquires 54% stake in robotics firm - Hindustan Times

Reliance Industries' arm Reliance New Energy Limited (RNEL) has entered into an agreement to invest Rs 50.16 crore in Altigreen Propulsion Labs Private Limited (Altigreen), the Mukesh Ambani-led conglomerate said Thursday.

RNEL will buy compulsorily convertible preference shares of the Bengaluru-based company, which Altigreen is an electric vehicle technology and solutions company for commercial last mile transportation through 2-,3-, 4-wheeled vehicles. The transaction is proposed to be completed before March 2022.

“The investment is part of our Company's strategic intent of collaborating with innovative companies in New Energy and New Mobility ecosystems,” RIL said.

RIL did not disclose the stake that it will acquire upon the conversion of the shares in Altigreen.

Altigreen has developed an E3 vehicle and its vehicles are built in-house in Bangalore on a 100% indigenous mobility platform. It currently has presence in 60 countries with 26 global Patents.

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