RBI leaves key rates on hold amid Omicron risks; analysts weigh in

The Reserve Bank of India's monetary policy committee (MPC) kept its key lending rate steady at record lows on Wednesday, as expected, with policymakers looking to gauge the impact of the Omicron coronavirus variant on the economic recovery.

The committee held the lending rate, or the repo rate , at 4%. The reverse repo rate, or the key borrowing rate, was also maintained at 3.35%.

All 50 economists polled by Reuters had expected no change in the repo rate and did not expect a change before the second half of 2022.

COMMENTARY

GARIMA KAPOOR, ECONOMIST - INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI

"Notwithstanding improving economic outlook and emerging concerns on inflation, the MPC held rates steady and retained guidance amid Omicron-related uncertainty and to support broad-based and durable recovery. However, as expected, RBI continued to amble along the liquidity policy normalisation path by hiking VRRR (variable rate reverse repo) quantum, thus laying the groundwork for a likely first reverse repo rate hike early next year."

"We expect MPC to hike reverse repo over Feb 2022 and April 2022 and are penciling in the first repo rate hike in August 2022."

PRITHVIRAJ SRINIVAS, CHIEF ECONOMIST, AXIS CAPITAL, MUMBAI

"The MPC has chosen to stay put on policy rate and kept growth as well as inflation forecasts unchanged to ensure that the recovery receives continued support in the face of persistent uncertainty from the pandemic." "We believe that the MPC will need to take note of resilient domestic demand and high input inflation going forward and pave the way for normalisation of crisis-level monetary policy while still maintaining an accommodative stance i.e. negative real policy rates."

UPASNA BHARDWAJ, SENIOR ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI

"The MPC expectedly maintained status quo on the policy rates and stance. The rhetoric too has remained focused on maintaining durable growth as long as inflation remains well in check."

"We continue to expect RBI to fine-tune the surplus liquidity to manage rates and consequently provide guidance on the operating target rate shifting closer to the repo rate. We retain our base case of reverse repo rate hike in February."

SUVODEEP RAKSHIT, SENIOR ECONOMIST, KOTAK INSTITUTIONAL EQUITIES, MUMBAI

"The policy was as expected and cautious on the uncertainty due to the Omicron variant. Also, the RBI continued with the liquidity normalisation on expected lines without any explicit signal of liquidity withdrawal. The inflation estimates are also lower than what the markets are expecting." "Broadly, the policy is more dovish than expected, possibly given the uncertainty from the new COVID variant. If the Omicron variant is benign, we expect a reverse repo hike of around 20 bps possible in the February policy and a tad more aggressive liquidity withdrawal."

RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCIAL HOLDINGS, MUMBAI

"It's a status quo policy in terms of rates, stance and projections. The RBI's plan to rebalance liquidity by increasing the variable reverse repo quantum will raise short-term rates in a gradual fashion without creating spikes in the long-term cost of borrowing. The policy appropriately reflects the concerns created by the emergence of Omicron and the associated uncertainty."