Reserve Bank of India governor Shaktikanta Das on Thursday surprised markets with a super dovish monetary policy that not only left rates unchanged but also retained the accommodative stance. Thepost-policy commentary too was supportive of growth with the governor saying that the next year’s borrowing programme would not be as big a burden as it appeared to be.
The status quo means that the cost of home loans and other borrowings that are linked to the repo rate will not go up for now. Deposits too may not rise sharply. With the repo and reverse repo rate maintained at 4% and 3.35% for the 10th successive policy, the focus shifted to reforms in the financial markets. Repo is the rate at which RBI lends to banks, while reverse repo is at which it borrows from them.
In his post-policy interaction, the governor indicated that next year’s borrowing programme would not be as big as projected in the Budget and said that the RBI had given foreigners headroom to invest Rs 1 lakh crore in Indian bonds, which will take some pressure off the oversized borrowing. The RBI also liberalised rules on interest rate derivatives, providing banks more headroom to extend hedging products to borrowers.
“The government will be borrowing Rs 65,000 crore to pass on to the National Highways Authority of India. This money would have otherwise been raised by NHAI,” said Das. He added that the government has also indicated that collections under small savings would be higher than expected, resulting in lower need for borrowing. Many had expected the central bank to hike the reverse repo rate to reduce surplus funds.
RBI officials also pointed out that the central bank is not taking a contrarian position, but it was that the circumstances on the ground were different.