RBI keeps interest rate unchanged in its bi-Monthly Monetary policy December 2020: Here is how Industry leaders reacted

New Delhi: Reserve Bank of India on Friday kept the benchmark interest rate unchanged at 4 percent but maintained an accommodative stance.

The benchmark repurchase (repo) rate has been left unchanged at 4 percent. Consequently, the reverse repo rate will also continue to earn 3.35 per cent for banks for their deposits kept with Reserve Bank of India (RBI).

Dinesh Khara, Chairman, SBI

“The RBI policy of maintaining the status quo was expected but the continued forward guidance of an extended accommodative stance will continue to serve the markets well. The upward revision of the FY 21 GDP growth rate to -7.5 percent emphasizes that the worst is behind us though we must remain watchful. The central bank announcement of the extension of on-tap TLTRO to stressed sectors is a perfect example of coordinated monetary and fiscal policy coordination, a hallmark of the current pandemic. Allowing the RRBs to access the liquidity adjustment facility, will help RRBs to efficiently deploy and diversify their surplus funds and enlarge the reverse repo window. The move towards the strengthening of supervision of financial entities will right-size the three lines of defense in pursuit of an effective risk management framework. Measures such as digital payments supervision, deepening financial markets, and ensuring ease of doing business for export transactions are useful steps.”

Sangita Reddy, President, FICCI

“It is heartening to see RBI confirming that it will maintain an accommodative stance till the time necessary for stabilizing growth on a firm footing. While the inflation trajectory has moved up, at this point in time re-energizing growth should get all the attention. There has been a substantial upgrade to the overall growth forecast for the second half of the current fiscal. This is encouraging but given the stress the economy had faced on account of COVID-19, we anticipate that policy support, both from the RBI and the government, will be required well into the next year.” 

Abheek Barua, Chief Economist, HDFC Bank

The RBI kept its policy rate unchanged at 4%, as expected, and continued to keep its policy stance accommodative. Some sections of the market had anticipated the central bank to act on the rising surplus liquidity in the system in light of the increasing inflationary pressures. However, the absence of any major liquidity absorption measures in the midst of a prolonged inflationary episode and indeed the upward revision of both the RBI’s growth and inflation forecasts might be somewhat puzzling. However, it could mean that the RBI is a) still cautious about the durability of growth given the myriad uncertainties related to growth, b) it sees inflation as principally a supply side-problem amenable to supply rather than monetary intervention, c) it is willing to tolerate higher inflation as long as growth impulses become firmly entrenched and 4) it perhaps expects some natural moderation in liquidity as the government usually goes into collection mode in the last quarter of the fiscal. In fact, given its emphasis on growth revival and the suggestion that there is still some more space left for monetary support, another 25-50 basis point cut in 1H CY2021 cannot be ruled out.

Nilesh Shah, Group President & MD, Kotak Mahindra Asset Management Company

“Credit policy has come on expected lines with continuation of pro-growth measures. There are several steps taken to strengthen financial stability. RBI has taken right direction in Keeping inflation on the back foot and supporting growth.”

Amar Ambani, YES SECURITIES

“In line with the expectations, RBI decided to stand pat on the policy rate and updated growth and inflation outlook given that inflation remains stubbornly high, while growth is gaining traction. The central bank scaled down on its earlier pessimistic GDP projection for FY21 as the frequency indicators and GDP data convey meaningful rebound in economic activity in both rural and urban demand. Inflation will remain as a hindrance for next two quarters and will dissuade further policy rate cuts at least for FY21. MPC did not unleash new on the non-interest rate tools, as significant measures (OMOs, TLTROs) have already been announced during the last policy meeting. The fact that liquidity remains high, while growth is gaining traction, makes us believe that RBI will adopt a wait and watch approach for next few months.  Nevertheless, the MPC reiterated its accommodative stance given the transitional phase the economy is going through, in terms of recovery from the pandemic.”

Rajiv Sabharwal, MD and CEO, Tata Capital

RBI continues to pause rates for the third consecutive policy. The inflation print seems higher than its comfort corridor which for now is an emerging situation. The complete restoration of supply chain in the near term will bring clarity on the inflation glidepath. The credit off-take revival has so far been slow, but green spouts are visible in certain sectors which must be nurtured. RBI clearly acknowledges the need to further incentivize demand for a broad based activity pickup. RBI maintains its resolve to strengthen growth in the economy.

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Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank

While growth is headed in the right direction, it needs to sustain over the medium-term. In addition, recovery needs to be broad-based and will require sustained policy support. Thus, the MPC’s unanimous decision to keep rates unchanged despite higher inflation, with a continued accommodative stance for as long as is necessary in the current financial year and the next, is a big positive.


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