InvestorQ : Was the RBI justified in not hiking reverse repo rates in the 10-Feb policy?
vidhya Laxmi made post

Was the RBI justified in not hiking reverse repo rates in the 10-Feb policy?

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sarah Leo answered.
3 months ago
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In a way, you can say that the RBI has opted to chart its own path keeping in mind the unique needs of the Indian markets. Status quo on rates was because GDP growth is struggling to revive. Private consumption is still tepid and needs to be supported by an accommodative stance. IIP and core sector data are showing lag effect of Omicron. So, low rates and ample system liquidity are almost inevitable at this point of time.

There is another interesting reason why the RBI adopted a stance divergent from other central banks. The US rates are 0.00%-0.25% when inflation is 7.5%. In contrast, Indian repo rates are 4% when inflation is 5.5%. In short, the negative real rate risk is lower for India than it is for the US. Also, given a choice between reining inflation and boosting growth, it will prefer growth as India needs growth, but can briefly live with higher levels of inflation.

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