RBI policy preview and some more ideas. A short thread.

1. Expect 25bps rate cut, it's a close call though. But rate reduction should continue with 0 nominal growth in FY21. Rates continue to remain high. No use looking at supply disrupted core and food inflation now.

2. Transmission should be a priority. Can't have the formal organized sector ( to the exception of top few large firms) continue to borrow at spreads as large as 400 to 600bps. Monetary policy needs to tackle the excessive term premium of 185bps.

3. Banks needs loads of capital to absorb an already slow economy battered by the COVID shock and with minimal fiscal support. This requires rethink of risk weights and probable use of RBIs own balance sheet to infuse confidence through corp bond buying

4. MPCs flexible inflation targeting needs more data and fresh targets. Paucity of employment situation reports and status of informal credit needs correction. RBI should probably ask it's own branches to create data sets with CSO or academic institutions.

5. For FY21 Centre+State+IEBR gross borrowing is up nearly 50%. This needs forwards guidance and clear communication to help investors understand the direction of the long end of the curve.

6. Moratorium may replace a one time restructuring which will kick the can further down but should ideally be tackled with recapitalization and fiscal support to businesses. Regulatory forbearance has it limits and downside if used for too long.