India's banking system is grappling with a persistent liquidity surplus exceeding Rs 5 trillion, driven by significant government spending and bond redemptions, leading market participants to anticipate the Reserve Bank of India will step up Variable Rate Reserve Repo operations to manage the excess funds.
The Indian government has extended the Reserve Bank of India's (RBI) mandate to maintain retail inflation at 4 per cent, with a tolerance band of 2 per cent on either side, for another five years until March 2031.
From liquidity, monetary policy operations to financial inclusion, know about RBI monetary policy
The RBI cut the rate several times last year to reduce it by 125 basis points to the current 6.75 percent.
Former Reserve Bank of India governor Yaga Venugopal Reddy said he would have preferred a tighter monetary policy as managing inflation and inflationary expectations were crucial to keep the economy growing.
India's retail inflation, measured by the Consumer Price Index (CPI), increased to 3.48 per cent in April, up from 3.40 per cent in March, primarily due to a surge in prices of gold and silver jewellery, as well as certain kitchen staples like tomatoes and cauliflower.
The inflation target of the RBI would be reviewed once every five years.
Retail inflation was at a 25-month low of 8.1 per cent in February.
Highlights of the RBI monetary policy.
"It is quite possible that the rates will remain low in the near to medium term, but that will depend on how conditions evolve," said RBI Governor Sanjay Malhotra.
Insights from behavioural economics suggest that an ambitious nudge can be effective if three conditions are met, points out Ram Singh Insights from behavioural economics suggest that an ambitious nudge can be effective if three conditions are met, points out Ram Singh, director, Delhi School of Economics.
Indian markets on Dalal Street rallied sharply as easing tensions in the US-Iran conflict and stable oil prices boosted sentiment. Track Nifty 50 and BSE Sensex performance and key global triggers.
Reserve Bank of India Governor D Subbarao on Friday increased mandatory cash reserve of banks held by RI by 75 basis points (0.75 per cent) in a bid to suck excess liquidity to combat rising inflation.
The RBI Governor, however, added it was 'difficult to say when that will take place and in what shape it will roll out'.
The RBI on Thursday hiked key policy rates for the 10th time since March, 2010, in a bid to tame inflation, which crossed the 9 per cent mark in May.
he government in its budget for 2009-10 proposed to raise Rs 4.5 lakh crore (Rs 4.5 trillion) from the market, up from Rs 3.1 lakh crore (Rs 3.1 trillion) in the previous year and pegged the fiscal deficit at 6.8 per cent of the GDP as against 6.2 per cent in 2008-09.
The central bank was widely expected to maintain status quo.
India Ratings and Research predicts the Reserve Bank of India (RBI) will maintain the repo rate at 5.25 per cent throughout FY27, despite potential inflationary pressures from higher fuel prices, with inflation expected to remain within the central bank's tolerance band.
The RBI has set up a panel to review ATM charges, and fees levied by banks.
Even if there is an early agreement on a cessation of hostilities in West Asia, the price shock will not go away easily, points out A K Bhattacharya.
The International Monetary Fund (IMF) has said the tightening of monetary policy by India is an 'appropriate' step, as the country is faced with high inflation and needs to consolidate the fiscal measures initiated during the slowdown.
The Reserve Bank of India (RBI) and the central government have introduced a package of measures, including tax exemptions for FPIs on government securities and a concessional foreign-exchange swap facility, aiming to attract up to $50 billion in foreign capital. This initiative is designed to strengthen India's balance of payments and potentially cover the projected BoP gap for FY27.
This is the fourth consecutive time that the RBI has kept key interest rates unchanged despite clamours from the industry to cut rates to boost economy.
A foreign brokerage warns that sustained crude oil prices above USD 100 per barrel could push India's inflation above the RBI's tolerance level, potentially triggering interest rate hikes.
QE tapering looms large over G20 summit; Singh says India on path of reforms, difficult ones to come.
Of the seven members, four are proposed to be government nominees and the rest from RBI.
Markets face risk of a prolonged bear phase as oil shocks and geopolitical tensions test inflation, growth and investor confidence globally, points out Debashis Basu.
The consumer price index (CPI)-based inflation hitting an all-time low in October would encourage the six-member monetary policy committee (MPC) of the Reserve Bank of India (RBI) to cut the policy repo rate in its upcoming December 3-5 meeting. However, the July-September GDP growth, expected to be above 7 per cent, may act as a deterrent.
Fitch Ratings on Friday said persistently higher oil prices could cause India's retail inflation to rise faster than the expected gradual pace, and lead to a slowdown in economic growth in the first half of financial year 2026-27 (FY27).
After a 25 basis point rate cut in December, the RBI on Friday decided to pause on the policy rate front amid geopolitical uncertainties.
Reserve Bank Governor Sanjay Malhotra on Friday said the key policy rates will remain at low levels for a long period and may go down even further.
The time frame for this is difficult to specify and much depends on stability in the foreign exchange markets, Prime Minister's key economic advisor C Rangarajan said.
RBI's previous monetary policy was announced on September 29.
Faced with the challenging task of balancing growth and inflation, the Reserve Bank of India will take measures in its quarterly review later this month to perk up the economy and to control inflation, which rose to 0.83 per cent for the third week of September.
The Indian banking system's net liquidity surplus has reached a four-year high of Rs 4.57 trillion, driven by maturing government securities, with further maturities expected to push the surplus to around 5 trillion.
Weighed down by a weak rupee, the Reserve Bank on Tuesday chose to keep all key interest rates unchanged and asked the government to take urgent steps to reign in the high current account deficit.
The Monetary Policy Committee (MPC) is expected to maintain the status quo on policy rates for the fourth consecutive time in its October 4-6 review meeting. The incremental information available since its last meeting in August suggests that growth and inflation prints for the second quarter (Q2) of financial year 2023-24 (FY24) will exceed the committee's projections. However, the Consumer Price Index (CPI)-based inflation is expected to moderate in the second half (H2) of FY24.
The RBI's bi-monthly policy review on June 3 will be the first after Prime Minister Narendra Modi assumed office on May 26.
The policy will be presented in the backdrop of rising inflation.
Asked if the RBI will cut rates in its upcoming policy review, he said the central bank will definitely factor into account various developments and make an assessment of the macro economic conditions.
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