RBI delivers ‘stealth easing’ while holding repo rate steady

As was widely expected, the Reserve Bank of India kept all key policy rates unchanged in the February policy, while also continuing with an accommodative stance. Even then, this monetary policy was significant due to several unconventional announcements.

Increased liquidity support signals RBI’s preference to keep rates “lower for longer”: RBI announced that as part of the revised liquidity framework, a 14-day term repo/reverse repo operation at a variable rate and conducted to coincide with the CRR maintenance cycle would be the main liquidity management tool from here on.

Consequently, the weighted average call rate (WACR) will now settle in the 4.90-5.15 per cent range, instead of the earlier practice of settling at the repo rate (5.15%). In a liquidity surplus scenario, as is the case today and which is likely to persist in the near future, this can at times potentially push WACR closer to the reverse repo rate (4.90 per cent currently). If this happens, this will be akin to an “effective easing” of 25bps even without changing the repo rate (at 5.15%).