{"id":127514,"date":"2021-08-20T19:18:06","date_gmt":"2021-08-20T13:48:06","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=127514"},"modified":"2021-08-21T16:49:37","modified_gmt":"2021-08-21T11:19:37","slug":"why-rbi-disagrees-with-market-perception-on-policy-normalization","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/why-rbi-disagrees-with-market-perception-on-policy-normalization\/","title":{"rendered":"Why RBI disagrees with market perception on policy normalization?"},"content":{"rendered":"<p><strong>Source<\/strong>:<span style=\"color: #0000ff;\"> <a style=\"color: #0000ff;\" href=\"https:\/\/www.business-standard.com\/article\/finance\/why-rbi-disagrees-with-market-perception-on-policy-normalisation-121081900887_1.html\">Business Standard<\/a><\/span><\/p>\n<h5><strong>What is the news?<\/strong><\/h5>\n<p>RBI\u2019s decision to conduct <strong>variable reverse repo (VRRR) <\/strong>auctions should not be considered as a reversal of the accommodative policy stance.<\/p>\n<h5><strong>Background<\/strong><\/h5>\n<ul>\n<li>Recently, RBI while announcing the review of the monetary policy, said the central bank has decided to conduct fortnightly VRRR\u00a0auctions.<\/li>\n<li>However, RBI Governor categorically stated that &#8220;these enhanced VRRR auctions should not be misread as a reversal of the accommodative policy stance&#8221;.<\/li>\n<li>But most market participants interpreted liquidity absorption through the VRRR as an indication that the RBI has started to reverse its ultra-loose monetary policy.<\/li>\n<\/ul>\n<p><span style=\"text-decoration: underline;\"><strong>Note<\/strong><\/span>: Please go through the basics of Repo and Reverse Repo at this <span style=\"color: #0000ff;\"><a style=\"color: #0000ff;\" href=\"https:\/\/forumias.com\/blog\/monetary-policy-basics-simplified\/#Repo_RateRR\" target=\"_blank\" rel=\"noopener\">link.<\/a><\/span><\/p>\n<h5><strong>Rationale behind VRRR<\/strong><\/h5>\n<p><span style=\"text-decoration: underline;\">Temporary liquidity absorption<\/span><\/p>\n<p>The 14-day variable repo\/reverse repo auction was categorized as instruments to manage <strong>short term or transient liquidity<\/strong>. When the tenor of VRRR is more than 14 days, the objective is to manage durable liquidity.<\/p>\n<ul>\n<li>Hence, by announcing a 14-day variable repo rate auction, the message was clear from the central bank. They do not want to disturb the durable liquidity; it is the <strong>temporary liquidity<\/strong> surplus that they want to absorb. One of the reasons behind this temporary surplus is lack of government spending.<\/li>\n<\/ul>\n<p><span style=\"text-decoration: underline;\">Aligning the overnight rates to the repo rate<\/span><\/p>\n<p>One more objective behind announcing this particular measure was also to align the overnight rates to the repo rate. Since the Covid-19 pandemic broke out in March 2020, the overnight rates are actually around the reverse repo rate. This decision to conduct VRRR auction will push up short term rates towards repo rate<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Source: Business Standard What is the news? RBI\u2019s decision to conduct variable reverse repo (VRRR) auctions should not be considered as a reversal of the accommodative policy stance. Background Recently, RBI while announcing the review of the monetary policy, said the central bank has decided to conduct fortnightly VRRR\u00a0auctions. However, RBI Governor categorically stated that&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/why-rbi-disagrees-with-market-perception-on-policy-normalization\/\">Continue reading <span class=\"screen-reader-text\">Why RBI disagrees with market perception on policy normalization?<\/span><\/a><\/p>\n","protected":false},"author":10316,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1566,3127,9],"tags":[8940,9221,9222],"class_list":["post-127514","post","type-post","status-publish","format-standard","hentry","category-daily-factly-articles","category-economy","category-public","tag-monetary-policies","tag-variable-reverse-repo-rate-auctions","tag-vrrr-auctions","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704607640},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/127514","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10316"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=127514"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/127514\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=127514"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=127514"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=127514"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}