Reserve Bank of India’s Cash Reserve Ratio Raised

February 5, 2021

The Reserve Bank of India as expected left its repo rate and reverse repo rate unchanged at 4.0% and 3.35%, respectively (there had been rate cuts of 115 basis points during 2020.) at the same time an initial move away from the ultra-expansionary stance commenced with today’s other decision to raise the bank’s cash reserve ratio to 3.5% from 3.0%. A further half percentage point increase is likely three months from now. A released statement from the RBI estimates that GDP will have dropped 7.7% in the fiscal year ending March 2021 but then to rebound 10.5% next fiscal year. CPI inflation is hovering now at the top of the target range but projected to fall back to 4.3% shortly after then mid-point of fiscal 2022. Monetary policy is characterized as accommodative and appropriately complementary to a stimulative fiscal stance.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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