*Sticking to Core Mandate !!!*

Monetary policy turned out to be as it was expected - a 25 bps cut in the wake of record low inflation. Thankfully, core mandate was not sidelined to support rupee, as some of us believed.

In fact, if one looks at policy statement (25 bps cut + FX swap + OMO purchase) in combination with media interaction, where governor kept repeating inflation to be benign going forward, it will not be preposterous to pencil in, another 25 bps cut in Feb. At the end, core mandate for MPC is inflation. Let’s see how MPC decides if inflation continues to undershoot.

Coming to market, a dovish policy is always liked by equity and bond, except currency, and reaction today was no different, with both equity and bond closing positive and rupee slightly weaker.

Interesting will be to see to what extent RBI allows rupee to weaken because after today’s policy, it is clear that rupee above 90 is not a big concern at least, for now. This also corroborates with CEA comment few days back that rupee above 90 is not causing sleepless nights. Thus, if someone has exposure to FX, needs to plan accordingly.