© Reuters. FILE PHOTO: A worker walks past the logo of Reserve Bank of India (RBI) inside its office in New Delhi, India July 8, 2019. REUTERS/Anushree Fadnavis/File Photo
(Reuters) – The Reserve Bank of India’s key lending rate was held steady at a fourth consecutive policy meeting on Friday, as widely expected, with investors more focused on the regulator’s liquidity management plan amid a resurgence in inflation.
The country’s monetary policy committee (MPC) kept the repo rate unchanged at 6.50%, in a unanimous decision. Most economists polled by Reuters had expected it to keep rates steady.
The central bank may consider open market (OMO) sales of bonds to manage liquidity conditions in line with its inflation objectives, RBI Governor Shaktikanta Das said.
COMMENTARY:
UPASNA BHARDWAJ, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI
“The MPC, on expected lines, delivered a status quo policy both on rates and stance. We expect the MPC to maintain a prolonged pause while using liquidity tools more frequently to manage the stance given the volatile global environment.”
SUVODEEP RAKSHIT, SENIOR ECONOMIST, KOTAK INSTITUTIONAL EQUITIES, MUMBAI
“The RBI’s decision to pause along with retaining the withdrawal of accommodation stance was in line with expectations.”
“Importantly, the RBI has explicitly highlighted the need to use OMO sales to modulate liquidity. This will weigh down bond markets’ sentiments.”
“Concerns on food inflation were highlighted, which can impart upside to headline inflation. We believe that inflation risks remain on the upside, given weather-related impact as well as commodity prices. Global monetary conditions will also weigh on RBI’s policy decisions.”
“The good part is that growth remains resilient and core inflation remains under check. We maintain our call for a prolonged pause on repo rate at 6.5% well into FY25 while liquidity over the medium term will be aimed at being close to neutral.”
SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, GURUGRAM
“As expected, the RBI delivered a status quo policy. The central bank also kept its growth and inflation forecast unchanged.”
“Given the pulls and pressures on liquidity conditions in the coming months, the RBI did not announce any durable liquidity absorption measures (like CRR), in line with our expectations.”
“However, they signalled that, if required, they are open to the option of conducting OMO sales to manage liquidity conditions. The 10-year yield could trade higher with the door being opened for OMO sales. Moreover, elevated U.S. yields could also continue to exert pressure in the near term.”
“For macro indicators, we expect September inflation print at 5.3% and full year to average at 5.4%.”
GARIMA KAPOOR, ECONOMIST, INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI
“We see the MPC holding rates throughout this fiscal year amid expected stickiness in domestic food inflation, higher rates in the United States and upside risks to prices.”
“The announcement of possible OMO sales in the later part of the year will likely help the RBI maintain liquidity in line with its stance, as inclusion in the JP Morgan Global EM Bond Index leads to gradual improvement in FII inflows into the debt market.”
