Construction Industry News
The Reserve Bank of India's monetary policy committee (MPC) on Wednesday kept the key interest rate (repo) unchanged at 4% for the ninth consecutive policy meeting and took an accommodative stance — a widely anticipated policy statement.
The market was divided over whether there would be a hike in the reverse repo rate: a view shared by MPC member Jayanth Varma. The gap between the repo and the reserve repo rate widened at the start of the pandemic in March 2020, and some economists believe there was reason to narrow the gap as a step toward normalizing the ultra-easy monetary policy stance .
However, the RBI decided to leave the reverse repo rate unchanged.
“Once this Omicron came along, global markets became volatile,” said A Prasanna, head of fixed income research, ICICI Securities PD, referring to a new strain of the coronavirus.
“We don't have complete information, although the initial information suggests it could be a mild variant, but still I think there are a lot of uncertainties. If you normally face uncertainties, the safe option is to maintain the status quo," Prasanna told Business Standard.
Omicron appeared five times in the 30-minute statement by RBI governor Shaktikanta Das on the outcome of the MPC meeting in Mumbai.
Some market experts welcomed the decision not to touch the reverse repo, as any interest rate hike would also affect other interest rates, which could have been counterproductive if the economic recovery is not yet sustainable.
“I am not suggesting that the corridor will remain this wide forever. Given that you have significant uncertainties about growth and therefore not a clear basis for an increase in interest rates across the board, there isn't really much you can do about the reverse repo at this point," Pan said.
