₹2.5 trillion at the end of FY21, almost double the recent average. This could help fund some of the unbudgeted rise in the fiscal deficit.All told, if the need to buy dollars is lower than last year, RBI could gradually shift the focus to controlling inflation and plan a gradual exit from loose monetary policy.But how would that unfold?
Starting in 4Q 2021, when the proportion of the population vaccinated will hopefully reach critical mass, we expect RBI to start reducing the level of surplus liquidity, raise the reverse repo rate, and change its monetary stance to neutral.