Borrowing rates

RBI surprises, keeps lending and borrowing rates unchanged

Mumbai: The Reserve Bank of India’s key rate held steady at record highs on Thursday, but it surprised markets by leaving its key deposit rate unchanged from some economists’ forecast of a hike to realign it with the short-term money market rate.

The monetary policy committee kept the lending rate, or repo rate, at 4%. The repo rate, or 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 5-1 majority to retain the dovish policy stance.

“Overall, given the outlook for inflation and growth, particularly the comfort provided by the improving inflation outlook, Omicron-related uncertainties and global fallout, the MPC felt that further support continued policy is warranted for a sustained and broad-based recovery,” RBI Governor Shaktikanta Das said in his address.

Respondents to a survey of Reuters February 2-4 had been narrowly divided on the timing of a repo rate hike, with just over half, 17 out of 32, expecting a 25 basis point increase to 4.25% in April .

Retail price inflation accelerated to a five-month high of 5.59% in December from a year earlier, while inflation based on wholesale prices, an indicator of production, fell slightly to 13.56%, but remained in double digits for nine consecutive months.

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

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

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