India Monetary Policy October 2021

India: Reserve Bank of India keeps rates unchanged in October

At its monetary policy meeting ending on 8 October, 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 considerable momentum since the last meeting back in August due to an improved health situation, and high frequency indicators suggesting output continues to recover at a robust pace, notable economic slack remains. Moreover, the economy remains below its pre-pandemic levels, while the recovery is uneven and dependent on policy support. Meanwhile, on the inflation front, price pressures have eased in August and September, coming in below the Bank’s expectations, further supporting its decision to maintain its policy rates. Nevertheless, the Bank decided to reduce some of its alternative stimulus measures by ending it QE purchasing program and large variable reverse repo rate auctions in its October meeting.

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 this year, although a few see hikes on the cards.

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

“We maintain our baseline view of a 40bp reverse repo rate hike at the December meeting, with some risk that it may be delivered in two steps (December and February). We expect a change in stance and repo rate hikes (Q1 2022), with 75bp of cumulative repo and reverse repo rate hikes in 2022.”

The next meeting is scheduled for 6–8 October.

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