Published on 5/02/2021 11:09:41 AM | Source: Reuters

Expert Views: India holds interest rates steady at record lows as economic outlook improves

Posted in Economy News| #RBI #India #Economy #Expert Views

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The Reserve Bank of India kept rates steady at record low levels as widely expected on Friday and reiterated that it will continue to support the recovering economy by ensuring ample rupee liquidity in the banking system.

The repo rate or RBI's key lending rate was held at 4% while the reverse repo rate or its borrowing rate was left unchanged at 3.35%.

The repo rate has been cut by a total 115 basis points since March 2020 to cushion the shock from the pandemic, following a 135 bps reduction since beginning of 2019.

RBI Governor Shaktikanta Das said the MPC unanimously decided to keep rates on hold. He said that the economy's growth outlook had improved and that inflation was expected to remain within the RBI's targeted range over the next few quarters.





"Given that the monetary policy framework is up for review in March, it made no sense to cut the policy rate in this meeting. For January, we expect the inflation to drop marginally to 4.4% yoy from 4.6%. More importantly though, with inflation heading decisively towards the RBI's median target of 4%, we are quite comfortable with our call of the next rate-cut during Q2 of 2020."

"Importantly, the RBI talked about supporting growth. We would likely see the RBI coming to the aid of the government, even in the fiscal space either by opting for debt monetization or sharing a portion of their excess reserve so that the fund can be used specifically for infrastructure development."

"This is all the more so given that we see a good possibility that the budgeted public capex for FY22 will fall short of the target unless the RBI gets into the act."



"The RBI kept policy rate on hold as expected and reiterated its accommodative stance. The operative word in today's (Friday) policy was the governor's reiteration of a previous statement that 'orderly evolution of bond markets was a public good'. The bank's inflation projection at 5% in the coming quarters reflects non-food price pressures currently seen in the economy which should keep the central bank watchful, even as economic recovery speeds up and liquidity remains bountiful on capital inflows as well as a large public borrowing programme."


(Reporting by Chris Thomas and Nallur Sethuraman in Bengaluru; editing by Uttaresh.V)

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