The first monetary policy of the current financial year, to be unveiled by the Reserve Bank of India governor Shaktikanta Das on 7 April, will be more than just a rate-setting statement. It will give broader direction to the debt market in a bid to smoothen the yield.

With the huge government borrowing on its shoulder, the RBI will continue making attempts to smoothen the yields for some time. The government plans to borrow Rs 7.24 trillion, or 60% of its total borrowing, by September 2021 just before the busy season for credit sets in.

As the second Covid surge surfaces, the central bank will also tend to promise the market of providing sufficient liquidity through open market operations (OMOs) so that credit growth is not hampered. OMO is a process through which the RBI buys back bonds from the banks, thus infusing liquidity into the banking system.

With the Covid situation aggravating in the country, RBI will reiterate its commitment to keep adequate liquidity to push growth while maintaining financial and price stability.

Bankers are not expecting any change in policy rates. “Dovish stand with no change in policy rates. RBI will reassure the markets about keeping optimum levels of liquidity to push growth, considering that there is now a surge in the number of Covid cases. The policy will also talk about OMOs, but the timing will be notified later. The yields in the government securities market have come down and the OMOs will check the yields,” Bank of America country treasurer Jayesh Mehta told Indianbankingnews.com.

“RBI will continue with the three de facto objectives of price stability, growth, and financial stability. It will also build forex reserves. We do not see any change in RBI’s monetary policy. The RBI MPC (Monetary Policy Committee) should deliver another dovish pause on Wednesday,” Bank of America said in a note. The MPC is the RBI’s rate-setting panel.

Das has maintained that the RBI will push for growth in the economy. RBI is likely to stay dovish tolerating higher levels of inflation so that growth is not hindered. Retail inflation, the figure that RBI uses for its inflation targeting, rose to a three-month high of 5.13% in February. The March inflation figures will be out by the middle of April.

“Average inflation is expected to remain above 4% in FY22 suggesting an extended pause for the repo rate through 2021. With the recent rise in Covid infections, uncertainty regarding the near term growth outlook has been reignited. Therefore we expect the MPC to maintain the accommodative stance at least for the next two reviews,” said ICRA principal economist Aditi Nayar.