India: Reserve Bank of India keeps rates unchanged in October
October 9, 2020
At its monetary policy meeting ending on 9 October, the Reserve Bank of India (RBI) kept the Bank’s policy rates unchanged, which met market expectations. The RBI kept the reverse repurchase rate, the repurchase rate and the marginal standing facility rate unchanged at 3.35%, 4.00% and 4.25% respectively.
The decision to stand pat was mainly the result of a stabilization in economic activity amid still-elevated food prices, which was counterbalanced by the recent spike in Covid-19 cases globally—particularly in Europe—raising significant concerns over the pace of the global economic recovery, and in turn the domestic outlook. Moreover, despite stronger inflationary pressures in recent months, household inflation expectations point to some easing in the short-term, while inflation in firms’ output prices have been relatively muted, in contrast to rising food costs. Consequently, the Bank decided to keep rates at their accommodative levels, while also taking several measures to enhance its unconventional stimulus measures in the form of additional liquidity support and rolling back some regulatory measures to further support the domestic economy.
Regarding the outlook, most members of the committee stated the current accommodative monetary should stay in place until at least the end of next fiscal year, to ensure inflation remains within the 2.0%–6.0% target range. The Bank stated higher inflation levels since April have been chiefly driven by supply shocks and expect inflationary pressures to ease as the economy reopens and decided in favor of keeping its stimulus measures in place to continue to support the economic recovery.
Prakash Sakpal a senior economist at ING, noted:
“The stable interest rate policy for two consecutive RBI meetings suggests that the RBI easing cycle has almost neared its limits. We expect policy rates to stay at their current record lows for a foreseeable future.”
Author: Steven Burke, Economist