RBI’s monetary policy committee (MPC) held the lending rate, or the repo rate, at 4%.Mumbai: The Reserve Bank of India’s monetary policy committee kept the bank’s key lending rate at a record low on Friday, as expected, as it sought to support economic growth even as inflation edged higher in the aftermath of the Russia-Ukraine war.The monetary policy committee (MPC) 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%.But the central bank said it would restore the width of the liquidity adjustment facility to 50 basis points, which was seen as a first step to move away from the ultra loose monetary policy embraced during the Covid-19 pandemic.It also raised its inflation forecast to 5.7% for the current fiscal year compared with 4.5% in the last fiscal year.CommentarySakshi Gupta, Senior Economist, HDFC Bank, Gurugram: “The RBI turned the policy corner, turning more hawkish in today’s policy. While the repo rate and stance were unchanged, the central bank normalised the policy corridor (with the introduction of SDF at 3.75%) and said it will focus on withdrawal of accomodation. Recognising inflationary risks, the RBI raised its inflation to 5.7% (up by 120 bps) and lowered its growth forecast to 7.2%.””The hawkish turn was warranted and it is likely that the central bank will change its stance to neutral in the coming policy, followed by a repo rate hike sooner than earlier expected. The 10-year bond yield is likely to move towards 7%-7.25% over the coming weeks.”Garima Kapoor, Economist – Institutional Equities, Elara Capital, Mumbai: “Amid increased uncertainty regarding the outlook for inflation and growth owing to Russian-Ukraine crisis, the MPC today decided to stay course on its pro-growth stance even as evolving global dynamics compelled an upward revision to its inflation projection and a return to pre-pandemic policy rate corridor.””With recovery in Indian economy still at a nascent stage and risks to growth enhanced despite elevated inflation, we expect the MPC to move to a neutral stance in August policy and anticipate a repo rate hike in H2FY23. Amid inability to explicitly support the government borrowing program, the RBI enhanced HTM limit by 100 bps, which could calm the bond markets despite a sharp increase in inflation forecast.”
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