Explained: What RBI’s status quo means for stock investors and borrowers

What is the News?

The six-member Monetary Policy Committee(MPC) of the Reserve Bank of India (RBI) has kept key policy rates – Repo rate, Reverse repo rate and the Bank rate – unchanged for the 10th time in a row and retained the accommodative policy stance.

Why has RBI kept the interest rates unchanged?

RBI has said that a status quo on interest rates and an accommodative policy stance – is needed for a durable and broad-based recovery. It took into consideration the outlook for inflation and growth and uncertainties related to Omicron and global spillovers.

What does the status quo mean for the economy?

There were concerns in the market that rising inflation may push the RBI to turn hawkish and even take steps to withdraw liquidity from the economy. But the RBI kept the rates unchanged.

This policy is in line with the government’s push for capital investment this year. It may also support borrowing by corporates.

What does this mean for borrowers and savers?

Borrowers, especially home buyers will benefit as lending rates are unlikely to go up in the near future. On the other hand, Savers and depositors will find their interest income unchanged.

What about equity investors?

For equity investors, the continuing low-interest rate and accommodative stance of the monetary policy mean a further rise in equity valuations for now. 

Moreover, RBI’s focus on growth will likely push up equity markets further. However, challenges will come from global interest rate increases and the outflow of funds from Indian equities.

Source: This post is based on the article “Explained: What RBI’s status quo means for stock investors and borrowers” published in Indian Express on 11th Feb 2022.