The equity markets have benefited massively from the Reserve Bank of India’s low interest rate regime.
The Governor of the Reserve Bank of India, Shaktikanta Das. (Photo: Reuters)
The Reserve Bank of India (RBI) has maintained a low interest rate regime and an accommodative stance for several months. This has not only helped the economy affected by Covid, but also contributed to the stock market’s dream run.
In its most recent bimonthly monetary policy review, the RBI’s Monetary Policy Committee (MPC) left the key repo rate unchanged at 4 percent and insisted that the central bank would support the economy until further recovery.
In his keynote address, RBI Governor Shaktikanta Das also mentioned how the central bank’s stance has contributed to domestic stock market growth in recent months.
Reading | RBI leaves repo rate unchanged at 4%, maintains accommodative stance
Shkatikanta Das has now made it clear that the RBI is in no hurry to change monetary policy or raise interest rates, which could surprise the equity markets.
“We are constantly monitoring the situation and will act in due course. At this point in time, we feel that the appropriate time has not yet come, ”said Shaktikanta Das CNBC.com in an interview.
NO SUDDEN CHANGE
The RBI governor said the central bank’s monetary policy moves will be calibrated and timed as it is not intended to cause sudden surprises to the stock markets.
A few days ago, reports of interest rate hikes or changes in the monetary policy stance of the RBI had clouded market sentiment. The clarification is intended to give the stock market a positive boost again.
Shaktikanta Das said the appropriate time for the central bank’s monetary policy committee to consider changing course would be when economic activity shows signs of durability and sustainability.
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The RBI governor’s comment comes ahead of the Jackson Hole Economic Symposium, an annual central banking conference of the Federal Reserve Bank of Kansas City.
All eyes remain on the conference as Federal Reserve Chairman Jerome Powell is expected to deliver a speech on the economic outlook. The speech could provide a clue as to when the U.S. would start pulling back on announced stimulus measures to limit the impact of Covid-19 on the economy.
Meanwhile, analysts assume that the RBI is expected to start rate hikes from the beginning of 2022 or in the fourth quarter of the current financial year. This could give the stock markets a much-needed boost at least until the end of the calendar year.
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