India’s Central Bank Holds Rates; says economy needs continued support

The reflection of a security guard is seen next to the Reserve Bank of India (RBI) logo at the RBI headquarters in Mumbai, India, June 6, 2019. REUTERS/Francis Mascarenhas

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MUMBAI, Feb 10 (Reuters) – The Monetary Policy Committee (MPC) of the Reserve Bank of India stuck to its accommodative policy to help the economy recover from pandemic lows, keeping the rate manager at an all-time high on Thursday.

As expected, the MPC kept the lending rate, or repo rate (INREPO=ECI), at 4%. The RBI however surprised some economists by also leaving the reverse repo rate (INRREP=ECI), the main borrowing rate, unchanged at 3.35%.

The median forecast in a Reuters poll was for the RBI to raise the reverse repo rate by 20 basis points to realign it with short-term money market rates and reduce the corridor with the policy rate. Read more

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The MPC voted unanimously to maintain the status quo on the repo rate and by a 5-1 majority to retain the dovish policy stance.

Continued policy support was warranted for a sustained and broad-based recovery, RBI Governor Shaktikanta Das said, noting an improving inflation outlook, economic growth outlook and uncertainties posed by the fast-spreading Omicron variant of COVID. -19 and the global economy.

“Private consumption, the mainstay of domestic demand, continues to lag behind its pre-pandemic level. The persistent increase in international commodity prices, the surge in volatility in global financial markets and the global supply bottlenecks can exacerbate risks to the outlook,” he said in his speech. political address.

“Overall, there is some loss of near-term growth momentum as global factors turn adverse. Looking ahead, domestic growth drivers are gradually improving.”

India’s benchmark 10-year bond yield fell 8 basis points to 6.72% at 0610 GMT in reaction to the policy, while the rupiah weakened slightly to 74.91 for a dollar.

The NSE Nifty 50 Index (.NSEI) rose 0.84% ​​to 17,610.20, while the S&P BSE Sensex (.BSESN) rose 0.83% to 58,953.65.

Retail price inflation accelerated to a five-month high of 5.59% in December from a year earlier, while inflation based on wholesale prices, an indicator of production, fell slightly to 13.56%, but remained in double digits for nine consecutive months.

Rising oil prices pose a major upside risk to inflation, but are expected to peak in the current quarter and then moderate closer to the 4% target in the second half of 2022/23, which will allow monetary policy to remain accommodative, Das said.

Real GDP growth is projected at 7.8% in 2022/23, compared to an expected growth of 9.2% this year, he added.

“The somewhat comfortable inflation path provides space for the RBI to withdraw monetary support only gradually and reduces the need for any sudden tightening action,” said Sakshi Gupta, senior economist at HDFC Bank at Gurugram.

“We expect the RBI to support growth and only raise the repo rate through August policy once there are greater signs of a more even recovery.”

The central bank has cut the repo rate by a total of 115 basis points (bps) since March 2020 to soften the blow of the coronavirus pandemic and strict containment measures. The rate is now 250 basis points below its level at the start of 2019, at the start of the easing cycle.

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Reporting by Swati Bhat and Abhirup Roy; Editing by Simon Cameron-Moore

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