“It would be interesting to see what RBI's take is on durable liquidity. If RBI spells out the creation of SDF, that would be one of the key points of the policy,” said Saugata Bhattacharya, chief economist at Axis Bank. Bhattacharya expects a prolonged pause in monetary policy and says much would depend on the outcome of the monsoon.
“Apart from existing conventional liquidity management tools, the government/RBI also appears to be considering the introduction of uncollateralised SDF operations. It would be interesting to see its operational mechanism in terms of rate setting and RBI's stance on variable reverse repo once SDF is in place,” said a Kotak Mahindra Bank report.
However, this being an annual policy, RBI's communication assumes significance.
“The annual policy meeting is critical in terms of setting up expectations based on forward-looking guidance, policy initiatives, and any initiatives on financial market developments. Since the stance has changed to 'neutral', communication strategy will be key for incremental rate transmission and development of future expectations,” said Soumyajit Niyogi, associate director, core analytical group, India Ratings & Research.
The monetary policy is expected to broadly give a direction to bad-debt situation of Indian banks. Economists also say that the growth-inflation dynamics have become more critical after the change in stance to neutral and therefore guidance on growth would be critical.
Besides, one more critical question on everyone's mind would be RBI's numbers on how much in old notes was returned to the central bank. All windows to return the old notes closed in March.
* Near unanimity: that the monetary policy committee would keep policy rates unchanged on Wednesday
* Annual event: promises to discuss many issues including bad-debt resolution and liquidity management
* Repo rate: is 6.25% now, while the RBI has changed its stance to 'neutral' from 'accommodative'
* Core inflation: is sticky at around 5%, even as the headline CPI has fallen below 4%
* Economists say: uncertain monsoon can flare up prices. So RBI would likely wait before deciding the way for rates to go
* Special deposit facility: Economists expect creation of non-collateralised liquidity parking instrument in this policy