The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Friday decided to keep the repo rate unchanged at 6.50 per cent for the fourth consecutive policy review. It also maintained the withdrawal of accommodation stance.
The central bank retained its forecast for gross domestic product (GDP) growth at 6.5 per cent and that for retail inflation forecast at 5.4 per cent respectively.
The rate-setting panel has identified high inflation as a major risk to macroeconomic stability and sustainable growth, he said. Accordingly, the focus remains on aligning inflation to the 4 per cent target on a durable basis.
“The RBI flagged that liquidity remains too skewed and as in the previous policy meeting, the leash on liquidity remains tight, with the RBI stating that it may consider OMO sales (Open Market Operation sales). Overall, this is a hawkish pause – replayed,” said Dr Aurodeep Nandi, India economist and vice president at Nomura.
The central bank will consider open market operation (OMO) sales to manage liquidity. “Going forward, while remaining nimble, we may have to consider OMO sales to manage liquidity, consistent with the stance of monetary policy. The timing and quantum of such operations will depend on the evolving liquidity conditions,” said Das.
Consequently, yield on the benchmark 10-year government bond surged by nine basis points. It was trading at 7.30 per cent, against 7.21 per cent on Thursday.
Liquidity in the banking system remains in deficit. The RBI injected Rs. 34,061 crore on Thursday, according to data it released.