SwatiBhat

MUMBAI (Reuters – India’s Reserve Bank of India kept its key lending rates at a record low as predicted on Thursday. But, the surprise to markets was that it also maintained its deposit rate unaffected. Many economists were expecting a raise in order to re-align them with short-term money market rate.

The repo rate (or lending rate) was held at 4% by the Monetary Policy Committee (MPC). The key borrowing rate or reverse repo rate was maintained at 3.35%.

MPC voted unanimously for the continuation of the current repo rate, and by 5-1 vote to adopt the same accommodative policy position.

In his speech, Shaktikanta Das, governor of RBI, stated that “Overall, considering the outlook for inflation, growth, and in particular the comfort afforded by improving the inflation outlook, and the uncertainties associated with Omicron, global spillovers,” he said.

In a poll conducted by Reuters from February 2 to 4, respondents had a split opinion on when a repo rates rise should occur. A little more than half (17 of 32) anticipated a 25-basis points increase to 4.25% in April.

From a year ago, retail inflation rose to an all-time high of 5.59% in December. Wholesale price-based inflation (a proxy for producer prices) fell to 13.56% but has remained at double digits for the past nine months.

After the RBI policy announcement, India’s benchmark 10-year bond yield dropped 4 basis points at 6.7610 to 6.7610. The rupee was also weaker against the dollar at 75.0275.

The NSE Nifty 50 index rose 0.27% to 17,511, as of 0445 GMT, while the S&P was up 0.27% at 58,622.30.

In order to cushion the effects of the coronavirus epidemic and tight containment measures, the central banks has cut the repo rates by 115 basis point (bps) over the period March 2020. Now, the rate is 250 basis points (bps) lower than it was at the start of 2019 when the easing cycle started.