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India’s central bank kept rates steady at record low levels as expected on Friday and said it would maintain support for the economy’s recovery from the pandemic by ensuring ample liquidity for markets to absorb a massive government borrowing programme.

“Going forward, the Indian economy is poised to move in only one direction and that is upwards. It is our strong conviction, backed by forecasts, that in 2021/22, we would undo the damage that COVID-19 has inflicted on the economy,” Reserve Bank of India Governor Shaktikanta Das said.

The repo rate or RBI’s key lending rate was held at 4% while the reverse repo rate or its borrowing rate was left unchanged at 3.35%.

The repo rate has been cut by a total 115 basis points since March 2020 to cushion the shock from the COVID-19 pandemic.

Das said all six members of the monetary policy committee (MPC) were unanimous in their decision to keep rates on hold and maintain an accommodative monetary policy and liquidity stance.

“The RBI clearly communicated that it doesn’t intend to yank away the liquidity carpet in a way that topples the vases of growth recovery and fiscal financing resting on it,” said Aurodeep Nandi, India economist at Nomura.

Das said the economy’s growth outlook had improved and that inflation was expected to remain within the RBI’s targeted range over the next few quarters.

“Given that inflation has returned within the tolerance band, the MPC judged that the need of the hour is to continue to support growth, assuage the impact of COVID-19 and return the economy to a higher growth trajectory,” Das said.

The policy statement however pointed to ongoing inflation concerns, as core inflation remains high. It said record pump prices of petrol and diesel were adding to worries and cited a need to create conditions that result in “durable disinflation”.

The MPC saw retail inflation running at 5.2% in the current quarter, and expected it to be between “5.2% to 5.0%” in the six months from April through September.

With the economy bouncing back from a low base after a pandemic-stricken year, the MPC has projected GDP growth of 10.5% for the fiscal year starting April.

After a severe contraction in the June quarter showed India had been one of the major economies hit hardest by the pandemic, a pick-up in manufacturing resulted in a much smaller contraction in the September quarter.

Das said the recent budget proposals and expenditure plans have raised hopes for a more robust recovery, and the bank stood ready to offer support and also ensure that the government’s 12.06 trillion Indian rupees ($165.42 billion) borrowing programme for the coming fiscal year was absorbed smoothly by the market.

“As the debt manager of the government what concerns us is the overall borrowing programme and the debt-to-GDP ratio and it is already under discussion between the government and RBI,” Das said.

“We are confident of managing (borrowing) it in a non-disruptive and seamless manner,” he added.

Das said deviation from the previously agreed glide path on fiscal consolidation was “inevitable” due to the impact of the pandemic on government revenues and said RBI would await the government’s new glide path which will look at bringing down the fiscal deficit to 4.5% by 2025/26.

The NSE Nifty 50 index was up 0.4%, having risen as much as 0.8% earlier, while the S&P BSE Sensex was up 0.5% at 0845 GMT.

The benchmark 10-year bond yield however rose to 6.19%, its highest since August 2020, before retreating slightly to 6.17% as traders were disappointed with the RBI not announcing a calendar for bond purchases.

“We expect the 10-year yield to range between 6-6.75% over the year with the lower bound possible only with sustained OMO purchases from hereon,” Upasna Bharadwaj, economist at Kotak Mahindra Bank said. Indian shares ended higher on Friday and notched their best weekly gain since April as State Bank of India advanced, while bond yields surged after the central bank kept interest rates unchanged.

The NSE Nifty 50 index ended up 0.19% at 14,924.25, having risen as much as 0.8% earlier in the session, while the S&P BSE Sensex gained 0.23% to close at 50,731.63.

For the week, the benchmark indexes closed up more than 9%, their best since the week ending April 10, 2020, largely on optimism from measures announced in the federal budget on Monday.