Status quo on policy rates, new instruments to support financial conditions

Faced with renewed challenges to growth and inflationary pressures, the Reserve Bank of India-led (RBI) Monetary Policy Committee (MPC) kept repo rate unchanged in the today’s meeting. It continued with its accommodative stance “as long as necessary” to ensure a durable economic recovery, especially since the second pandemic wave threatens the country’s growth prospects. The central bank also chose to focus on supporting desired financial conditions through new instruments, the highlight being the ‘G-sec acquisition programme’ (GSAP) to ease yields on government securities (G-secs).

MPC’s status quo was expected in view of growing pandemic-induced restrictions and uncertainty around the inflation trajectory. We believe the MPC will keep the repo rate unchanged and remain accommodative in the foreseeable future. Even as inflation remains a concern, the RBI will use the available policy space as innovatively as possible to support financial conditions.