India Monetary Policy February 2022

India: Reserve Bank of India keeps rates unchanged in February

At its monetary policy meeting ending on 10 February, 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 that the current accommodative stance remained necessary to support the ongoing recovery in economic activity. In January, domestic demand showed some signs of weakness as the spread of the Omicron variant weighed on output from both the manufacturing and services sectors. Meanwhile, inflation has remained elevated in recent months. However, food price inflation declined in December, while fuel price pressures also eased, though they remained in the double digits.

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 rising next fiscal year as private consumption levels improve, leaving the Bank with more room to tame price levels.

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

“We do not see any fundamental reason for changing our forecast of 100 basis points of policy repo rate hikes in 2022; the RBI’s decision to downplay inflation does not reduce its threat. In terms of the timing, we are pushing out the April repo (and reverse repo rate) hike call to June. We expect the RBI’s policy stance to change from ‘accommodative’ to ‘neutral’ in April, with 25 basis points worth of repo rate hikes at each of the next four policy meetings in 2022.”

The next meeting is scheduled for 6–8 April.

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