India Monetary Policy April 2021

India: Reserve Bank of India keeps rates unchanged in April

At its monetary policy meeting ending on 7 April, the Reserve Bank of India (RBI) kept its policy rates unchanged, which met market expectations. The RBI left the reverse repurchase rate, the repurchase rate and the marginal standing facility rate at 3.35%, 4.00% and 4.25%, respectively.

The decision to stand pat was mainly the result of the gradual and uneven recovery in economic activity amid relatively strong inflationary pressures, driven predominately by supply chain disruptions, and relatively elevated food costs. Moreover, the Bank noted that despite easing fuel costs in February core inflation levels picked up, while consumers’ inflationary expectations increased slightly over the three months horizon. Overall, inflationary pressures were subject to balanced risks as stronger agricultural output should tame food prices, while the impact of higher commodity prices and logistical hurdles could fuel prices elsewhere in the economy. The recent rise in Covid-19 cases and tighter lockdown measures in some major economies weighed on the Bank’s short-term outlook somewhat, but resilient rural economic conditions coupled with fiscal stimulus measures should keep economic activity on the path of recovery going forward.

Regarding the outlook, all members of the committee stated the current accommodative stance should stay in place to support the economic recovery, while ensuring inflation remains within the 2.0%–6.0% target range.

Commenting on the RBI’s latest meeting, Barnabas Gan, an economist at UOB, noted:

“India’s growth prospects will therefore depend largely on how COVID-19 evolves. Thus far, macroeconomic indicators have been recovering, and the outlook is also expected to improve further with the rollout of the vaccine programme across the country. However, we are worried over the renewed surge in COVID-19 cases, which in turn could inject a considerable downside risk to RBI’s (and UOB’s) GDP growth outlook of 10.5% in FY2021/22. We keep to our view for RBI to hold policy rate unchanged for the whole of 2021, although a risk of a rate cut in the second half of 2021 may be possible should COVID-19 stays unchecked in India.”

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