RBI Hikes Key Lending Rate First Time in 4 Years
RBI hikes repo rate by 40 basis points to 4.40 per cent in a surprise move. It raised its key lending rate by 40 basis points to 4.40 per cent with immediate effect. The central bank also hiked the cash reserve ratio by 50 basis points. The decision was taken by the monetary policy committee (MPC) in an off-cycle meeting with the central board held May 2-4. The RBI's off-cycle move also comes ahead of a widely-expected 50 basis points hike by US Federal Reserve. RBI Governor Shaktikanta Das said the decision was taken in view of rising inflation, geo-political tensions, high crude oil prices and shortage of commodities globally, which have impacted Indian economy. “The decision today to raise repo rate may be seen as reversal of rate action of May 2020. Last month, we had set out a stance of withdrawal of accommodation. Today's action needs to be seen in line with that action. I would like to emphasize that the monetary policy action is aimed at containing inflation spike and re-anchoring inflation expectation,” he said, adding that "high inflation is known as detrimental to growth,” said Das. This was the first hike in policy rate since August 2018, which would increase the cost of borrowing for corporates as well as individuals. The latest surprise hike completely reverses the Covid-support off-cycle rate cut in May 2020. RBI also decided to remain accommodative while focusing on withdrawal of accommodation to ensure inflation remains within target going forward. In his address, the RBI Governor noted that food Inflation is expected to remain high as spillovers from global wheat shortages are impacting domestic wheat prices, even though domestic supplies remain comfortable. “Due to the Russia-Ukraine war, edible oil prices may firm up as major producing countries have imposed export restrictions,” he said. Retail inflation hit nearly 7 per cent in March and held above the upper end of the RBI's target band of 2-4 per cent for the third month in a row.
Tags : RBI Hike Key Lending Rate RBI Governor Shaktikanta Das the monetary policy committee (MPC)