RBI hikes interest rates in sudden move; Repo rate up 40 basis points, cash reserve ratio up 50 basis points


RBI Governor Shaktikanta Das says the RBI’s MPC met at an off-cycle meeting and decided to raise interest rates to curb rising inflation

RBI Governor Shaktikanta Das says the RBI’s MPC met at an off-cycle meeting and decided to raise interest rates to curb rising inflation

The Reserve Bank of India (RBI) raised interest rates by 40 basis points (bps) to 4.4% and cash reserve ratio (CRR) by 50 basis points to 4.5% in a sudden move on Wednesday.

In an unscheduled announcement, RBI Governor Shaktikanta Das said that the RBI’s Monetary Policy Committee (MPC) met in an off-cycle meeting and decided to hike interest rates to curb rising inflation.

Despite the rate hike, the RBI will maintain its “accommodative” stance even as Indian economic fundamentals remain strong, he said.

‘With immediate effect’

The RBI said the policy repo rate increase would take effect immediately.

Consequently, the standing deposit facility (SDF) rate is adjusted to 4.15% and the standing marginal facility (MSF) rate and bank rate to 4.65%.

“The MPC has also decided to remain accommodative while focusing on unaccommodating to ensure future inflation remains within target while supporting growth,” the RBI said in a statement.

“These decisions are consistent with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4%, within a range of +/- 2%,” she noted.

disruptions, bottlenecks

The RBI said that since the MPC meeting in April 2022, disruptions, shortages and escalating prices caused by geopolitical tensions and sanctions are ongoing and downside risks have increased.

“Elevated uncertainty surrounds the inflation trajectory, which is heavily dependent on the evolving geopolitical situation. Global commodity price dynamics are driving the path of food inflation in India, including prices of inflation-sensitive items hit by global shortages due to production losses and export restrictions by key producing countries,” the central bank stressed.

The RBI said the MPC believes that while economic activity navigates the maelstrom of forces presenting the world with resilience on the strength of underlying fundamentals and buffers, risks to the near-term inflation outlook would quickly materialize as reflected in inflationary pressures for March and developments thereafter.

“In this environment, the MPC expects inflation to prevail at elevated levels, justifying determined and calibrated steps to anchor inflation expectations and contain second-round effects,” it said.

However, the RBI governor tried to allay fears about the impact of higher interest rates on growth, saying: “Our monetary policy actions today – aimed at bringing inflation down and anchoring inflation expectations – will undermine the economy’s medium-term growth prospects.” strengthen and consolidate”. He pointed out that persistently high inflation “is bound to harm sectors, investment, competitiveness and output growth.”

He stressed that the RBI is mindful of the potential near-term impact of higher interest rates on output, and assured that its approach will be to focus on “a cautious and calibrated rollback of pandemic-related extraordinary adjustments, taking into account inflation.” growth dynamics’. The RBI would “ensure sufficient liquidity in the system to meet the productive needs of the economy to support borrowing and growth,” he added.

Leave a Reply

Your email address will not be published. Required fields are marked *