Mumbai: The Reserve Bank of India (RBI) kept interest rates steady at record lows on Wednesday, as widely expected, sticking to its accommodative monetary policy amid concerns that rising COVID-19 infections could derail the country’s nascent economic recovery.
The RBI kept the repo rate or its key lending rate steady at 4% while the reverse repo rate or its borrowing rate was left unchanged at 3.35%.
India’s central bank has slashed the repo rate by a total of 115 basis points (bps) since March 2020 to soften the blow from the pandemic. This follows 135 bps worth of rate cuts since the beginning of 2019.
“The MPC judged that monetary policy should remain accommodative till prospects of sustained recovery are well secured,” Governor Shaktikanta Das said.
The decision comes as a resurgence in cases has prompted many state governments to resume coronavirus restrictions this week, fuelling concerns about economic activity. India reported 115,736 new coronavirus infections on Wednesday.
The MPC voted unanimously to keep rates steady and retain the accommodative monetary policy stance, Das said adding that it would do so while keeping a lid on inflation.
The annual retail inflation rate rose to a three-month high of 5.03% in February due to higher fuel prices.
The blue chip NSE Nifty 50 index and the benchmark S&P BSE Sensex rose after the central bank left is key rates unchanged. The Nifty was up 0.76% at 14,794.40 while the Sensex rose 0.73% to 49,554.71 by 0435 GMT.
Traders are closely awaiting the RBI’s guidance on liquidity normalisation which will be critical for bond markets which needs to absorb the government’s massive borrowing program of $12 trillion in 2021/22.
The government needs these funds to support its spending to ensure the economy continues to remain on track for a solid recovery.
Gross domestic product grew 0.4% year-on-year in the October-December quarter of 2020. Revised data showed in February the economy contracted 7.3% in the July-September period of 2020 and 24.4% in April-June.