RBI springs a surprise, keeps lending, borrowing rates unchanged

Centre extends Shaktikanta Das' term as RBI governor for another 3 years
The Reserve Bank of India (RBI) Governor Shaktikanta Das greets the media as he arrives at a news conference after a monetary policy review in Mumbai, India, February 6, 2020. Reuters/Francis Mascarenhas

Mumbai: The Reserve Bank of India's key lending rate was held steady at record lows on Thursday, but it surprised markets by leaving its key deposit rate unchanged against some economists' predictions of a hike to re-align it with short-term money market rates.

The monetary policy committee held the lending rate, or the repo rate, at 4%. The reverse repo rate, or the key borrowing rate, was also kept unchanged at 3.35%.

The MPC voted unanimously to maintain the status quo on the repo rate and by a majority of 5-1 to retain the accommodative policy stance.

"Overall, taking into consideration the outlook for inflation and growth, in particular the comfort provided by improving inflation outlook, the uncertainties related to Omicron and global spillovers, the MPC was of the view that continued policy support is warranted for a durable and broadbased recovery," RBI governor Shaktikanta Das said in his address.

Respondents to a poll by Reuters on Feb. 2-4 had been closely split on the timing of a repo rate rise, with slightly more than half, 17 out of 32, expecting a 25-basis point increase to 4.25% in April.

Retail inflation accelerated to a five-month high of 5.59% in December from a year earlier, while wholesale price-based inflation, a proxy for producer prices, eased marginally to 13.56%, but remained in double-digits for nine straight months.

India's 10-year benchmark bond yield fell 4 basis points to 6.7610 after the RBI policy decision, while rupee weakened against the dollar to 75.0275.

The NSE Nifty 50 index rose 0.27% to 17,511, as of 0445 GMT, while the S&P BSE Sensex was up 0.27% at 58,622.30.

The central bank has slashed the repo rate by a total of 115 basis points (bps) since March 2020 to soften the blow from the coronavirus pandemic and tough containment measures. The rate is now 250 bps below its level at the beginning of 2019, when the easing cycle began.

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