India's central bank held its key lending rate at a record low on Wednesday, saying growth was a priority as it warned of risks from inflation and the new Omicron variant on the economic recovery.
Even as the Reserve Bank of India retained its accommodative policy stance, it outlined plans to drain surplus liquidity in the banking system, raising the chances of a hike in a key borrowing rate early next year.
"Broadly, the policy is more dovish than expected, possibly given the uncertainty from the new COVID variant," said Suvodeep Rakshit, senior economist at Kotak Institutional Equities.
"If the Omicron variant is benign, we expect a reverse repo hike of around 20 bps possibly in the February policy and a tad more aggressive liquidity withdrawal."
The central bank's monetary policy committee held the lending or repo rate at 4%. The reverse repo or borrowing rate was also kept at 3.35%.
"The overarching priority of RBI at this stage is revival of growth. Price stability is also our concern, so therefore at this moment, without losing sight on the requirement of price stability, we will concentrate on growth," Governor Shaktikanta Das told a news conference.
The benchmark 10-year bond yield dropped to a session low of 6.35% after the policy decision, compared with the previous close of 6.39%, while the Indian rupee was a little weaker at 75.48 per dollar.
India's economy expanded 8.4% in the September quarter from a year earlier, the fastest pace among major economies, but economists say the pandemic situation is a wild card.
The MPC retained its full-year economic growth projection at 9.5% and also kept its retail inflation outlook unchanged at 5.3%.
Inflation has been within the RBI's 2-6% target range in recent months but Das said inflation could trend higher in the immediate future and sustained high core inflation was a matter of policy concern.
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