The Reserve Bank of India on August 6 left interest rates unchanged at record lows while reiterating an accommodative stance as long as necessary to support growth.
The repo rate, the rate at which the central bank lends funds to banks, remains at 4 percent. The reverse repo rate, the rate at which the Reserve Bank of India (RBI) borrows money from banks for the short term, was held steady at 3.35 percent.
"The recovery remains uneven across sectors and needs to be supported by all policymakers. The Reserve Bank remains in 'whatever it takes' mode, with a readiness to deploy all its policy levers - monetary, prudential or regulatory," RBI Governor Shaktikanta Das said, sharing the outcome of the meeting.
Inflation seems to be weighing on the minds of the members of the monetary policy committee even though the central bank said growth remained its focus. The MPC has revised upward to 5.7 percent the estimate for Consumer Price Index (CPI) inflation for the financial year (FY) 2022 from 5.1 percent.
Here is what top analysts think of the RBI’s policy outcome:
Amar Ambani, Senior President & Head, Institutional Research, Yes Securities
We infer that the RBI is likely to stand put on the repo rate till the end of this fiscal year, as stabilising growth will be a long-drawn process, given the threat from evolving COVID strains. In case growth stabilises later this year, the process of policy normalisation will begin with a hike in the reverse repo rather than the repo rate.
Jimeet Modi, Founder & CEO Samco Group
While additional measures have been announced to comfort the banks on liquidity availability, the continuance of the same will foster an atmosphere of affordability, which has emerged as the new characteristic of the housing market.
Conditions around aggregate demand still remain weak and any rate hike would have further deferred growth. Hence, the central bank’s policy is more balanced than aggressive as it is on its toes to ensure adequate liquidity within the economy.
Rahul Bajoria, Chief India Economist, Barclays India
Das stuck to his rhetoric that the current high inflation remains transitory and driven by supply-side pressures. While the policy was largely along expected lines, the October policy review gains significance as there would be some concrete evidence on the durability and strength of the growth recovery as well as the pace of vaccination.
Overall, Das maintained an accommodative tone, in line with our expectation that the central bank has little to gain by providing signals about its normalisation path. We continue to expect the RBI to pursue faster normalisation through a back-loaded hiking cycle, once it is sure the economic recovery will be sustained.
Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research
While the RBI will continue to maintain adequate systemic liquidity and implement the previously announced programmes like the GSAP, it has also announced its intent to manage short-term liquidity more actively through a significantly higher quantum of Variable Rate Reverse Repo (VRRR) auctions. However, there are no indications on the timeframe for the normalisation of the policy corridor.
The policy support for the stressed sectors has been reaffirmed with the extension of timelines for TLTRO till December 2021 and relaxation in some key financial parameters for the OTR under Covid. This will help in quicker resolution of some of the pending stressed exposures in the banking system.
Jyoti Roy, DVP- Equity Strategist, Angel Broking
We expect the RBI will continue to maintain its accommodative monetary policy given that the high inflation levels are transitory in nature and should start coming off in the second half of the year.
Moreover, the recovery from the second wave is still nascent and needs to be nurtured and we expect the RBI will continue to use all tools available, including OMOs, GSAP, TLTRO, operation twist, etc to ensure that longer-term interest rates are well anchored and there is adequate credit flows to the most stressed sectors.
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