RBI Urged to Rethink Repo Rate Amid Rupee Pressures: SBI Report

SBI Research advises the Reserve Bank of India against hiking the repo rate, recommending alternative tools to manage rupee pressure. The report emphasizes a data-driven approach and recalls past strategies, suggesting targeted liquidity measures and 'Operation Twist' to balance market pressures without elevating borrowing costs.

SBI Research has called on the Reserve Bank of India (RBI) to reconsider hiking the repo rate, as the central bank prepares for its upcoming Monetary Policy Committee meeting. The research unit contends that targeted short-term interest measures and liquidity adjustments could more effectively manage rupee pressures.

The report highlights the need for a data-dependent approach, citing historical examples like the 2013 initiative where RBI elevated the Marginal Standing Facility rate to counter exchange rate volatility without altering the repo rate substantially. SBI Research suggests that similar strategies could be more efficient in the current economic climate.

Moreover, the report proposes utilizing 'Operation Twist' to manage interest rate dynamics, enabling short-term rates to rise while keeping long-term rates relatively lower. This approach, according to SBI Research, could address market concerns and stabilize the rupee, ensuring robust GDP growth projections amidst ongoing global uncertainties.