India Monetary Policy December 2021

India: Reserve Bank of India keeps rates unchanged in December

At its monetary policy meeting ending on 8 December, 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 Bank decided the current accommodative stance remained necessary to support the ongoing recovery in economic activity. Despite the economy gaining momentum since the last meeting back in October, the recent surge in new-Covid-19 cases globally, the emergence of the Omicron variant and ongoing supply chain disruptions continue to weigh on the global economic recovery. On the inflation front, elevated energy and commodity prices, heightened shipping container costs and the shortage in semiconductors continues to keep producer price pressures upbeat. Moreover, despite inflation moderating slightly domestically, heavy rainfalls in October weighed heavily on the outlook for the agricultural sector and pushed food prices higher. Nevertheless, the recent spike in food prices should ease ahead, while a correction in crude oil prices and ongoing economic slack should continue to weigh on the inflation outlook. Consequently, the committee decided that the current amount of monetary stimulus was necessary to support economic output.

In its communiqué, the RBI reiterated that it would keep its stance accommodative “as long as necessary to revive and sustain growth on a durable basis […] while ensuring that inflation remains within the target going forward.” The majority of panelists see rates remaining unchanged for the rest of this fiscal year, although a few see hikes on the cards. Looking further ahead, our FocusEconomics Consensus forecast suggest at least an increase of 50 basis points to its key policy rates by the end of calendar year 2022.

Commenting on the outlook for monetary policy, analysts at Nomura noted:

“As the output gap bridges and inflation remains above target, there should be less of a tolerance for negative real interest rates (currently -1.0 to -1.5%). Our Taylor Rule simulations suggest the repo rate could rise by 100-120bp, depending on our assumption of the natural equilibrium rate. Consequently, we now expect 100bp of repo and reverse repo rate hikes in 2022. In our base case, the RBI changes its policy stance to ‘neutral’ from ‘accommodative’ and delivers a first 25bp hike in April 2022, with the pace picking up thereafter. Downside risks include future waves, a sharp rise in commodity prices, weaker global growth and larger-than-expected drag due to scarring effects. Upside risks include low inflation and positive multiplier effects of public capex.”

The next meeting is scheduled for 7–9 February.

Free sample report

Access essential information in the shortest time possible. FocusEconomics provide hundreds of consensus forecast reports from the most reputable economic research authorities in the world.
Close Left Media Arrows Left Media Circles Right Media Arrows Right Media Circles Arrow Quote Wave Address Email Telephone Man in front of screen with line chart Document with bar chart and magnifying glass Application window with bar chart Target with arrow Line Chart Stopwatch Globe with arrows Document with bar chart in front of screen Bar chart with magnifying glass and dollar sign Lightbulb Document with bookmark Laptop with download icon Calendar Icon Nav Menu Arrow Arrow Right Long Icon Arrow Right Icon Chevron Right Icon Chevron Left Icon Briefcase Icon Linkedin In Icon Full Linkedin Icon Filter Facebook Linkedin Twitter Pinterest