RBI holds rates over inflation, assures ample liquity for stressed sectors

Das said the economy was rebounding faster than expected from a coronavirus-induced slump earlier in the year but warned signs of recovery were far from being broad based

RBI, reserve bank of india
Das said MPC members voted unanimously to hold rates and retain the stance.
Reuters
3 min read Last Updated : Dec 04 2020 | 1:01 PM IST
The Reserve Bank of India (RBI) kept key interest rates steady as widely expected on Friday amid persistently high inflation but said it will ensure ample liquidity is provided to stressed sectors to keep a nascent economic recovery on track.

Its monetary policy committee decided to retain an accommodative policy stance at least for the current financial year and into the next year to revive growth on a durable basis, while ensuring that inflation remains within target, Governor Shaktikanta Das said in an online briefing.

Das said the economy was rebounding faster than expected from a coronavirus-induced slump earlier in the year but warned signs of recovery were far from being broad based. Covid-19 infections are also continuing to climb, with the tally now 9.57 million people.

Das said MPC members voted unanimously to hold rates and retain the stance. The key lending rate of the RBI or the repo rate was left unchanged at 4 per cent while the reverse repo rate or the key borrowing rate stayed at 3.35 per cent.

“The MPC is of the view that inflation is likely to remain elevated, barring transient relief in the winter months from prices of perishables,” Das said.

“This constrains monetary policy at the current juncture from using the space available to act in support of growth.”

Indian stocks, which were up ahead of the policy announcement, were little changed afterwards, while the rupee was largely steady at 73.77 against the dollar. The benchmark 10-year bond yield dropped 3 basis points to 5.90 per cent.

Das announced measures to help improve access to funding for stressed sectors and said the RBI will take further steps when necessary to ensure ample rupee liquidity to sustain visible growth impulses.

“An accommodative liquidity stance will ensure access to liquidity will not be a challenge and the ongoing recovery continues to gather steam,” said Ashish Shanker, head Of investment at Motilal Oswal Private Wealth Management.

“This will help push through government borrowings in a year when revenues are under pressure. Guidance is better than earlier on growth and flows.”

The central bank has slashed the repo rate by 115 basis points (bps) since late March to cushion the shock from the coronavirus crisis and sweeping lockdowns to check its spread.

However, inflation has remained consistently above the upper end of the RBI’s mandated 2 per cent-6 per cent target range every month barring March this year, with core inflation also remaining sticky.

The MPC sees inflation in the current quarter at 6.8 per cent before cooling slightly to 5.8 per cent in the Jan-March quarter.

Gross domestic product in the July-September quarter contracted 7.5 per cent on-year, after a decline of 23.9 per cent in the previous three months.

The latest decline was more moderate than expected, prompting some analysts to push back expectations for more interest rate reductions.

Analysts polled by Reuters last month expect India to emerge from recession early in 2021 but it is not expected to return to pre-pandemic levels any time soon.

Topics :InflationRBIRBI repo rateMPC meet

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