Mumbai: India's central bank expanded its version of quantitative easing (QE) to keep borrowing costs anchored, as economic growth is seen faltering because of a resurgent COVID-19 wave. The Reserve Bank of India will buy an additional 1.2 trillion rupees ($16.4 billion) of bonds under the so-called Government Securities Acquisition Programme 2.0, Governor Shaktikanta Das said.
The programme is aimed at keeping government borrowing costs anchored to ensure it can aid an economic recovery. The central bank lowered its expectation for gross domestic product growth to 9.5 per cent in the current fiscal year, down from 10.5 per cent previously. The Monetary Policy Committee kept the benchmark repurchase rate steady at 4 per cent.
The six-member committee, which has been in pause mode for more than a year, said it was retaining its accommodative policy for as long as necessary to revive and sustain growth on a durable basis, signaling there's still room to cut rates further. "At this juncture, policy support from all sides is required to gain the momentum of growth," Das said.
A safety net for government
The RBI's bond-buying programme aims to support the administration's borrowing plan, with the central bank buying sovereign debt to cap yields. It's already on course to acquire 1 trillion rupees of bonds in the quarter ending in June.
Sovereign bonds fell, with the yield on benchmark 10-year bond rising by one basis point to 6.01 per cent, while the rupee and stocks were slightly lower.
On a fine edge
A recovery in Asia's third-largest economy is in peril from a resurgent pandemic, which forced several states to impose lockdowns to check the virus spread. The movement and activity curbs are seen fanning inflation and hitting GDP, with many economists already cutting their growth forecasts for this fiscal year to single digits, from double digits previously.
In addition to cutting its growth forecast, the rate panel now sees inflation ending at 5.1 per cent for the year, toward the upper end of its 2-6 per cent target band. Friday's rate decision comes amid concerns that higher input and wholesale costs could feed into consumer prices. The build-up in price pressures is partly due to supply disruptions caused by the pandemic and higher global commodity prices.