INSTANT VIEW-India's cenbank keeps rates on hold to support economic recovery

Oct 8 (Reuters) – The Reserve Bank of India’s monetary policy committee kept interest rates steady at record lows on Friday, as widely expected, but traders are awaiting its comments about inflation and liquidity normalisation for further clues on the outlook.

RBI’s key lending rate or the repo rate was held steady at 4% while the reverse repo rate or the borrowing rate also stayed unchanged at 3.35%.

All 60 economists polled by Reuters had said they expected no change in the repo or reverse rates, which have been kept steady since May last year.

“We derive comfort from the fact that the inflation trajectory is turning out to be more favourable than anticipated,” Governor Shaktikanta Das said in a speech after the policy decision.



“Encouraged by the improving domestic growth outlook, palpable vaccination progress and resurfacing risks, the RBI outlined its exit roadmap from extraordinary easy liquidity conditions even as the MPC held rates steady.”

“The systemic liquidity deluge in banking was increasing risks of asset price inflation and risk mis-pricing, thus an imperative liquidity policy normalization.”

“With today’s measures, we view the RBI as waltzing into a calibrated exit from its accommodative policy beginning with liquidity reduction. We expect reverse repo rate to hike in February 2022. By then, there would be sufficient clarity on possible impact, if at all of wave 3 of COVID-19, the Fed’s policy, and the impact of higher global commodity prices owing to supply-side shocks.”


“The RBI policy, as expected, remained cautious and in a wait-and-watch mode. Even as it increased the quantum under the 14-day VRRR auctions and opened the option of 28-day VRRR auctions, it adequately sounded out on its dovishness and the need to ensure liquidity conditions remain comfortable.”

“We do not see the RBI in a hurry to normalise liquidity conditions as well as the reverse repo rate in the near term. We continue to see February policy as the earliest period of review for the RBI to narrow the policy rate corridor by raising the reverse repo rate.”

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