India keeps rates on hold; market eyes views on liquidity, inflation
- All members voted in favour of the decision to hold rates and a 5-1 majority supported retaining the accommodative monetary policy stance, Das said
MUMBAI: The Reserve Bank of India's monetary policy committee kept interest rates steady at record lows on Friday, as widely predicted, but traders were awaiting its commentary about liquidity normalisation for clues on its next policy move.
The RBI held the repo rate, its key lending rate, at 4% and kept the reverse repo rate, the borrowing rate, unchanged at 3.35%.
All 61 economists polled by Reuters late last month had said they see no change in the repo rate which has been steady at 4% since May last year.
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"The need of the hour is not to drop our guard and to remain vigilant against any possibility of a third wave especially in the background of rising infections in certain parts of the country," RBI Governor Shaktikanta Das said in a virtual address accompanying the MPC's decision.
All members voted in favour of the decision to hold rates and a 5-1 majority supported retaining the accommodative monetary policy stance, Das said.
At 0434 GMT, the NSE Nifty 50 index and the benchmark S&P BSE Sensex were each up 0.2%. The country's benchmark 10-year bond yield was at 6.23% after the decision, while the Indian rupee was steady at 74.11 against the dollar.
Market participants are keen to know if the central bank is looking at advancing its exit from extraordinary liquidity support due to rising inflationary pressures, or if it continues to think those forces are transitory and hints at delaying any tapering amid fears the country will be hit by a third wave of the coronavirus pandemic.
RBI has slashed the repo rate by a total of 115 basis points (bps) since March 2020 to soften the blow from the health crisis and tough containment measures. This follows 135 bps worth of rate cuts since the beginning of 2019.
The consensus in the latest Reuters poll expects the RBI to deliver two 25-basis-point rate hikes in the next fiscal year, taking the repo rate to 4.50% by end-March 2023.
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