By Mr Sachin Sawrikar, Managing Partner, Artha Bharat Investment Managers IFSC LLP for your perusal.
The upcoming RBI MPC meeting will be closely watched as markets focus on the central bank’s approach to managing liquidity and financial conditions amid elevated government borrowing and persistent foreign portfolio investor outflows. Continued USD purchases by FPIs are draining domestic liquidity, tightening financial conditions despite steady policy rates. Combined with heavy government bond supply, this is putting upward pressure on yields, constraining credit availability, and raising the cost of domestic fund-raising.
Markets will closely track the RBI’s assessment of these dynamics and its commentary on liquidity tools. Any guidance on proactive measures to maintain adequate system liquidity and ensure orderly bond market functioning will be critical for investor confidence and market stability. Overall, the MPC is expected to emphasise macroeconomic stability and transmission efficiency, signalling that policy effectiveness at this stage relies more on calibrated liquidity management and stable financial conditions rather than immediate adjustments to interest rates.