The repo rate or RBI's key lending rate was held at 4% while the reverse repo rate or its borrowing rate was left unchanged at 3.35%. The repo rate has been cut by a total 115 basis points since March 2020 to cushion the shock from the coronavirus pandemic, following a 135 bps reduction since beginning of 2019. Das said the six members of the monetary policy committee (MPC) were unanimous in their decision to keep rates on hold.
The recent budget has focused on supporting growth and thereby the government has announced higher than expected fiscal deficit target and gross borrowing. The Finance Minister announced higher than expected government borrowing of Rs 12 lk cr for FY22 and additional borrowing of Rs 80000 cr over the next 2 months which led to a spike in 10-year yield by nearly 18bps to 6.08% at 5 month high. The Governor’s commentary on how actively will they support bond markets to keep a check on rising in long term yield will be crucial for bond markets.
A lot of economists expect RBI policy normalization beginning with first liquidity normalization and some economists see the RBI hiking rates in CY2022. Hence commentary on how comfortable is the RBI with current liquidity surplus and liquidity management will be crucial besides how long will the RBI continue with accommodative stance. CRR now stands at 3% and CRR reversal of 100bps is effective from end Mar2021, watch out for will the RBI ex
Read more about Bad bank, no Covid cess: Why Sensex zoomed 1,900 pts post Budget proposals on Business Standard. The optimism despite higher borrowing and a wider fiscal deficit, analysts say, was on account of the positive measures to revive the Covid-19 hit economy
Read more about Bad bank, no Covid cess: Why Sensex zoomed 2,100 pts post Budget proposals on Business Standard. The optimism despite higher borrowing and a wider fiscal deficit, analysts say, was on account of the positive measures to revive the Covid-19 hit economy