Expect policy rates to remain low for an extended period: RBI Guv

Does the pause mean we have reached the terminal repo rate of 5.25?

This is a question that the MPC must answer. We remain data dependent. And we are in a neutral phase. Only one MPC member wanted to change the position from neutral to accommodative. Everyone else wanted a neutral stance, meaning that given the current state of the economy and the nine-month to one-year forecast, this is the pace we expect to maintain. However, I can say that we are in a good place. Underlying inflation is low; even the forecasts are much lower than the inflation target. Overall inflation can go up and down. And so I expect that the policy interest rate will remain at a low level for a long time. I will leave it to the MPC to decide whether the repo rate will fall further.

How do you assess the immediate decline in overnight market interest rates?

Ensuring liquidity is our duty – adequate and sufficient liquidity necessary to meet the productive needs of the economy. Second, we must ensure that the transmission of repo cuts takes place not only in the money markets, but also in government bond markets, corporate credit markets and all other markets. Everything we do in liquidity is guided by these objectives. We have a number of tools to provide liquidity and keep overnight rates close to the repo rate, including open market operations (OMOs), floating rate repo auctions (VRRs) and reverse floating rate repo auctions (VRRRs). As you know, transmission has been good in all markets until December. There was some hardening in money markets after December, but overall it was excellent.

Is the RBI happy with a credit-deposit ratio of 80-90%?

This is a cyclical trend. During times when credit growth is faster than deposits, CD ratios are expected to rise, and during times when credit growth is not as strong, they will fall. We have seen this happen again and again. But I can say that for us it is not the CD ratio that is important. An important aspect to look at is the available liquidity at the banks. There is the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR), which we are looking at, and both parameters are at a very comfortable level for both banks and non-banks.

The RBI has been selling US government bonds for a while…

Certainly not. Overall, our foreign exchange reserves were down. As a result, all assets will change. These are fluctuations from day to day or week to week, but there is no reduction in our supply of US government bonds.

The Center has reduced its subsidy for UPI in the budget. There is a demand from payment industry players to impose MDR on larger merchants for peer-to-merchant transactions. Is the RBI amenable to this request?

With UPI, someone has to pay the costs. That said, it is a government domain. And I am very confident that we will certainly be able to find ways to not only maintain but also improve this very important payment infrastructure, which is very unique and will continue to be so for years to come. There should be no concerns for stakeholders. I think we will be able to find a way to maintain and improve this.