Quote on RBI’s MPC announcement – Siddhartha Sanyal, Chief Economist and Head of Research, Bandhan Bank

– Siddhartha Sanyal, Chief Economist and Head of Research, Bandhan Bank

Maintaining status quo on policy rates had been a prudent move by the MPC, especially amid fresh uptick in Covid-related uncertainties globally. The RBI rightly indicated that economic activities in India are on the mend but still need policy support. As expected, withdrawal of crisis time liquidity was further stepped up in December with plans of larger quantum of VRRR auctions.

While the reverse repo rate was kept unchanged, today’s meeting further strengthened the groundwork for a change, potentially in the February meeting. The larger VRRR quantum will effectively lead expectations for higher money market rates; and this may lead to only a minor disruption when the reverse repo rate is finally adjusted upward by a small quantum.

Overall, the process of normalization of monetary policy remains nuanced and gradual, even if erring on the side of caution, rather than being a source of surprise.