India to maintain repo/reverse repo rates
07 December 2016 New Delhi
Image: Shutterstock
The Reserve Bank of India (RBI) is keeping its policy repo rate at 6.25 percent after a unanimous vote of the monetary policy committee (MPC) on 7 December.
Its reverse repo rate will also be unchanged at 5.75 percent.
RBI’s recently-formed MPC explained the principle objective behind its decision was to achieving consumer price index inflation at 5 percent by Q4 2016 to 2017, while also striving for a medium-term target of 4 percent.
The committee was created in September with six financial experts chosen specifically to set the bank’s repo rates and move away from the previous model of having the central bank’s governor decide.
In explaining its decision, the committee cited domestic liquidity, which shifted dramatically in Q4 as a result of the withdrawal of specific bank notes from early November, as a key reason behind the decision to maintain rates.
Currency in circulation plunged by INR 7.4 trillion (USD 109.4 billion) up to 2 December. Consequently, net of replacements, deposits surged into the banking system, leading to a massive increase in its excess reserves.
The central bank has since scaled up its liquidity operations through variable rate reverse repo auctions of a wide range of tenors from overnight to 91 days, absorbing liquidity (net) of INR 5.2 trillion (USD 76.88 billion).
On the international stage, the impact of the US presidential election and the subsequent increased probability of a Federal Reserve rate hike, along with the disruption in the US bonds market, played a part. The impact of a strong US dollar on other global currencies was also recognised.
The next MPC meeting is scheduled for 7 February 2017.
Its reverse repo rate will also be unchanged at 5.75 percent.
RBI’s recently-formed MPC explained the principle objective behind its decision was to achieving consumer price index inflation at 5 percent by Q4 2016 to 2017, while also striving for a medium-term target of 4 percent.
The committee was created in September with six financial experts chosen specifically to set the bank’s repo rates and move away from the previous model of having the central bank’s governor decide.
In explaining its decision, the committee cited domestic liquidity, which shifted dramatically in Q4 as a result of the withdrawal of specific bank notes from early November, as a key reason behind the decision to maintain rates.
Currency in circulation plunged by INR 7.4 trillion (USD 109.4 billion) up to 2 December. Consequently, net of replacements, deposits surged into the banking system, leading to a massive increase in its excess reserves.
The central bank has since scaled up its liquidity operations through variable rate reverse repo auctions of a wide range of tenors from overnight to 91 days, absorbing liquidity (net) of INR 5.2 trillion (USD 76.88 billion).
On the international stage, the impact of the US presidential election and the subsequent increased probability of a Federal Reserve rate hike, along with the disruption in the US bonds market, played a part. The impact of a strong US dollar on other global currencies was also recognised.
The next MPC meeting is scheduled for 7 February 2017.
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