
RBI holds rates; unveils new measures
The recent surge in Covid-19 infections, the central bank says, adds uncertainty to the outlook on domestic growth as restrictions could dampen demand improvement and delay the return of normalcy.
The recent surge in Covid-19 infections, the central bank says, adds uncertainty to the outlook on domestic growth as restrictions could dampen demand improvement and delay the return of normalcy.
At its first monetary policy review for 2021, the central bank kept key rates unchanged, while announcing several measures to manage liquidity.
Minutes of RBI’s Monetary Policy Committee meeting highlight that members were divided on the space for future rate cuts.
The central bank has been quiet on its regular growth and inflation forecasts, citing the highly fluid circumstances, but it has given ample hints in its latest Monetary Policy report.
While directly mum on inflation and growth, the RBI’s latest monetary policy report warns that Covid-19 would impact economic activity in India through lockdowns and slowing global trade and growth.
Despite acknowledging that inflation surged above tolerance level and the economy continued to be weak, the central bank’s MPC sees policy space available for future rate action.
At the last monetary policy meeting of FY20, the central bank kept the interest rate unchanged, with a warning to not read the ‘pause’ continually for its future actions.
The Monetary Policy Committee meeting minutes reveal that its members were bogged down by rising inflation and slowing growth, which could mean status quo going forward.
While hoping for no rate action from RBI, Ind-Ra expects a macroeconomic hotchpotch if these factors sustain beyond a quarter.