Amid Omicron Scare, RBI Keeps Lending Rates Unchanged For 9th Time

New Delhi: The Reserve Bank of India's (RBI's) Monetary Policy Committee on Wednesday maintained status quo on key interest rates as the new strain of coronavirus - Omicron - added to the economic uncertainties.

The Reserve Bank kept repo rate at an all-time low of 4 per cent and the reverse repo rate at 3.35 per cent. Repo rate is the rate at which the RBI lends money to commercial banks; while reverse repo rate is the rate at which the Reserve Bank borrows from the banks.

The central bank has kept the rates unchanged for ninth time in a row.

RBI Governor Shaktikanta Das said that the MPC voted unanimously to hold rates and maintain an accommodative stance as long as necessary to push growth while ensuring inflation remains under control.

On the economic front, the RBI retained GDP (gross domestic product) growth target at 9.5 per cent for the current financial year, the Governor mentioned. Retail inflation was projected at 5.3 per cent for FY22, he added.

"The MPC expectedly maintained status quo on the policy rates and stance. The rhetoric too has remained focused on maintaining durable growth as long as inflation remains well in check. We continue to expect RBI to fine tune the surplus liquidity to manage rates and consequently provide guidance on the operating target rate shifting closer to the Repo rate. We retain our base case of reverse repo rate hike in February," said Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank.

"RBI keeping interest rates unchanged is supportive of growth. While green shoots are beginning to show, private consumption continues to be below the pre-Covid levels. MSMEs have started stabilizing, and we expect MSMEs to bounce back in 2022. Spending will pick up at the middle and lower-income groups as Covid impact fades, and fuel tax cuts will likely aid purchasing power. Omicron poses a risk, if widespread lockdowns return, the outlook will alter substantially," said YS Chakravarti, Managing Director and Chief Executive, Shriram City Union Finance Ltd.

The central bank had last revised the policy rate on May 22, 2020, in an off-policy cycle to boost demand by cutting interest rate to a historic low.

The RBI has been mandated by the government to ensure that the retail inflation based on the Consumer Price Index (CPI) remains at 4 per cent with a margin of 2 per cent on either side.

Meanwhile, the domestic stock indices rallied with the benchmark BSE Sensex rising more than 700 points. As of 10:12 am, Sensex was 1.28 per cent or 740 points higher at 58,380; while the broader NSE Nifty was trading above 17,350.