MUMBAI (Businesshala) – The Reserve Bank of India’s monetary policy committee on Friday held widely expected interest rates steady at record levels, and called for a gradual opening of only pandemic-era stimulus to aid the nascent economic recovery. repeated.
RBI’s prime lending rate or repo rate remained unchanged at 4%, while reverse repo rate or lending rate also remained unchanged at 3.35%.
All 60 economists polled by Businesshala said they did not expect any change in rates, which have been held steady since May last year.
“Overall, aggregate demand is improving but remains sluggish; Production is still below pre-pandemic levels and recovery remains uneven and is dependent on continued policy support,” Governor Shaktikanta Das said after the decision.
RBI cut its full year 2021/22 retail inflation forecast to 5.3% from 5.7%, saying the inflation trajectory has turned out to be more favorable than expected. But it maintained its full-year economic growth forecast at 9.5%.
Economists polled by Businesshala this week said pandemic-related shutdowns threaten to further delay India’s economic recovery in the second half of this fiscal year.
RBI has cut the repo rate by a total of 115 basis points (bps) from March 2020 to cushion the blow from the health crisis and strict containment measures. This follows a 135 bps price cut in rates from the beginning of 2019.
The country’s coronavirus vaccination has picked up pace and greenshoots are visible in various sectors, but consumer spending during the upcoming festive season will be crucial in determining the sustainability of the revival.
Indian inflation is trending lower but volatility in global commodity prices, including crude oil, is impacting the medium-term outlook. September inflation is expected to fall to a five-month low, according to the latest Businesshala poll.
“Supply side and cost pressure pressures are impacting inflation and these are expected to improve with normalization of supply chain,” Das said.
However, he said efforts to contain cost-push pressures through reversal of indirect taxes on fuel could contribute to a more sustained lowering of inflation and stabilizing inflation expectations.
“On petrol and diesel, we have raised this issue and the government has to consider all aspects and take a decision,” Das said.
As of 0738 GMT, the NSE Nifty 50 index and the benchmark S&P BSE Sensex had posted gains and were up 0.5% respectively. The benchmark 10-year bond yield was up 5 basis points at 6.32%, while the rupee weakened at 75.02 against the dollar.
Das, however, tried to assuage market concerns about any early exit from the RBI’s hyper-lax monetary policy or withdrawal of excess liquidity from the banking system.
“Our whole approach is one of gradualism. We don’t want suddenness, we don’t want surprises,” Das said.
“We realize that as we are getting closer to the shore, when the shore is so close, we don’t want to rock the boat, because we realize that there is a life, a journey beyond the shore”.
He also said that markets should not be concerned about the adequacy of liquidity to support economic activity or support financial markets. Das said the RBI has cumulatively infused Rs 5.47 trillion ($72.97 billion) into the banking system since the beginning of the last financial year in April.
“We do not see RBI in any hurry to normalize the liquidity position as well as the reverse repo rate in the near term. Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities, said, “We continue to view the February policy as an early period of review for the RBI to ease the policy rate corridor by raising the reverse repo rate.”
($1 = 74.9625 Indian Rupee)