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    HomeBusinessRBI hikes repo rate by 50 bps to 4.9 per cent

    RBI hikes repo rate by 50 bps to 4.9 per cent

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    The monetary policy committee (MPC) unanimously voted to increase the policy repo rate by 50 basis points from 4.40 per cent to 4.90 per cent in the backdrop of intensified inflationary pressures even as the economic growth is gaining momentum.

    The MPC voted unanimously to remain focussed on withdrawal of accommodation while supporting growth. Significantly, there was no reference to the earlier “accommodative stance” in either the Governor’s statement or the resolution of the MPC.

    The retail inflation projection for FY22 has been upped sharply to 6.7 per cent (taking into account average crude oil price at $105 per barrel) from 5.7 per cent even as GDP growth projection has been retained at 7.2 per cent.

    With the repo rate hike, the rate on the standing deposit facility and marginal standing facility stand adjusted to 4.65 per cent (from 4.15 per cent) and 5.15 per cent (4.65 per cent), respectively.

    Elevated inflation

    Retail (consumer price index/CPI-based) inflation has been ruling at or over the MPC’s upper tolerance limit of 6 per cent since the beginning of 2022. The January 2022 inflation reading came in it at 6 per cent. Thereafter, it has been north-bound — February (6.1 per cent), March (7 per cent) and April (7.8 per cent).

    The “State of the Economy” article in RBI’s latest bullrting has cautioned that heightened global risks stemming from weakening growth, elevated inflation, supply disruptions on account of geopolitical spillovers and financial market volatility stemming from synchronised monetary tightening pose near-term challenges.

    Reserve Bank of India Governor Shaktikanta Das, in an interview to a business channel on May 23rd, had said that expectations of a rate hike are a no-brainer as inflation is a major area of concern even as economic recovery is steady and gaining further traction.

    This comment came in the backdrop of his April 2022 observations that the central bank’s sequence of priority is inflation first and after that growth.

    Published on June 08, 2022

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