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Amid the rising fear of Omicron variant, RBI Kept Repo Rate Unchanged

Story Highlights
  • Reserve Bank of India (RBI), Monetary Policy Committee (MPC) unanimously kept the key lending repo rate unchanged on December 8.
  • The impact of the new variation to be regularly monitored.
  • RBI may not give a knee jerk reaction to increase in inflation and would continue to be accommodative.

New Delhi: The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) unanimously held the benchmark lending repo rate steady on December 8. In the face of growing global concern about the Omicron form of Covid-19, India’s central bank left key lending rates unchanged for the ninth time. RBI has held the repo rate unchanged to help the economy through the Covid-19 issue. The MPC’s decision to keep rates was expected, but the RBI Governor’s declaration that “growth is the priority” suggests that the rates may be held even after the next review and beyond. The impact of the new variation is a problem that will be regularly monitored, and the fact that inflation is within the range makes it easier to be accommodating. In addition, the RBI anticipates inflation to peak in Q4 before easing. This view also suggests that the RBI will continue to remain accommodating in the face of rising inflation rather than reacting with a knee-jerk reaction. The growth forecast for FY 22 was kept at 9.5 percent, with slight changes for the third and fourth quarters. MPC also reaffirmed that excess liquidity will be dealt with in a non-aggressive way. Inflationary pressures are also projected to be relieved as a result of this.

The administration has maintained an accommodating approach, as most experts predicted. This is a positive indication for the economy since higher consumption and expenditure will boost growth. This should lead to increased borrowing by the government and other development organisations, accelerating development efforts. Overall, a strong stance that will be well received by the business community. However, given long-term accommodating policy, the possibility of asset price inflation cannot be totally eliminated. Real estate and other asset prices may rise, and one should be prepared. An increase in the price of raw materials might lead to an increase in the price of real estate.

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