India Central Bank Maintains Status Quo

India’s central bank left its key interest rates unchanged as the economy needs policy support amid possible risks to growth from the new coronavirus variant Omicron.

The Monetary Policy Committee of the Reserve Bank of India, led by Governor Shaktikanta Das, unanimously decided to retain the policy repo rate at 4.00 percent. The reverse repo rate was left unchanged at 3.35 percent.

The MPC has judged that the ongoing domestic recovery needs sustained policy support to make it more broad-based.

By a majority of 5 to 1, the MPC voted to retain the accommodative policy stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.

Governor Shaktikanta Das said the recovery that had been interrupted by the second wave of the pandemic is regaining traction, but it is not yet strong enough to be self-sustaining and durable.

Although the economy is relatively well-positioned on the path of recovery, it cannot be immune to global spillovers or to possible surges of infections from new mutations including the Omicron variant, Das said.

The central bank retained the projection for real GDP growth for the financial year 2021-22 at 9.5 percent.

With the RBI still focusing primarily on supporting the fragile economic recovery, policy rates are likely to be left on hold for a few more months yet, Darren Aw, an economist at Capital Economics, said.

The central bank expects price pressures to persist in the immediate term. Das said inflation prints are likely to be somewhat higher as base effects turn adverse.
However, it is expected that headline inflation will peak in the March quarter of 2022 and soften thereafter.

The bank maintained its inflation outlook at 5.3 percent for FY2021-22.

The RBI has also unveiled liquidity withdrawal measures. The bank said it will continue to rebalance liquidity conditions in a non-disruptive manner while maintaining adequate liquidity to meet the needs of the productive sectors of the economy.

With this objective, the bank proposed to enhance the 14-day Variable Rate Reverse Repo, or VRRR, auction amounts.

Source: Read Full Article