(Reuters) – The Reserve Bank of India’s key lending rate was held steady at record lows on Thursday, but it surprised markets by leaving its key deposit rate unchanged against some economists’ predictions of a hike to re-align it with short-term money market rates.
The monetary policy committee held the lending rate, or the repo rate, at 4%. The reverse repo rate, or the key borrowing rate, was also kept unchanged at 3.35%.
The MPC voted unanimously to maintain the status quo on the repo rate and by a majority of 5-1 to retain the accommodative policy stance.
Respondents in a Feb. 2-4 Reuters poll were closely split on the timing of the repo rate rise, with slightly more than half, 17 of 32, expecting a 25-basis point increase to 4.25% in April.
COMMENTARY
KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU
“The RBI kept the stance as accommodative to be able to continue to provide policy support on a durable basis.”
“Importantly, RBI projected FY22-23 real GDP growth of 7.8%, much less than the official expectation of between 8.0% and 8.5%. While still higher than our estimate of 7.0%, it does indicate a circumspect central bank and the willingness of the RBI to err on the side of caution.”
“There is, therefore, a possibility that RBI would make every possible attempt to not hike the policy rate in April but push it further to June, though it would still be in line with our expectation of a hike in Q2 22.”
“Also, given that the expectation of inflation peaking by Q421 (similar to ours) may provide some comfort to the central bank. That said, we feel that continuing to ignore inflationary pressure for long will come at a cost and the central bank may eventually have to opt for a more aggressive tightening going forward, thereby by clamping down growth prospects.”
GARIMA KAPOOR, ECONOMIST – INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI
“Facing a tough choice between policy rate normalisation amid sticky inflation and global tightening of financial conditions and limiting the increase in yields amid record high government borrowing programme for FY23, in line with our expectations, the MPC retained both policy repo and reverse repo rate and also maintained accommodative stance to support growth on a durable basis.”
“The recent stress in the bond market, comfort on medium term inflation outlook and need to address uneven domestic growth seem to have prompted the decision. We now expect RBI to hike reverse repo rate in Q1FY23 followed by a repo rate hike in Q3FY23.”
PARTH NYATI, FOUNDER, TRADINGO, MUMBAI
“There were expectations that the RBI may hike the reverse repo rate and may change its stance to neutral from accommodative in tandem with hawkish global central banks amid rising inflation but it continued with its existing stance.”
“The RBI believes that inflation will peak out soon and there is a need for continuous support to the economy. Generally, it is considered positive for the market but it will be important to see how the market will read it because there could be a risk that the RBI will remain behind the curve that may cause inflation in the future.”
RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCIAL HOLDINGS, MUMBAI
“By staying pat on policy rates and keeping the stance at accommodative, the MPC is trying to avoid a knee-jerk reaction in the fixed income markets. This may help banks to avoid huge mark to market losses at the quarter end.”
“Market participants are already moving towards normalisation following the signals coming from the global economy and the actions of the global central banks. However, today’s monetary policy announcement will provide a short term relief to the market sentiment.”
(Reporting by Rama Venkat and Chandini Monnappa in Bengaluru and Abhirup Roy in Mumbai; Editing by Rashmi Aich)
