The Reserve Bank Of India (RBI) on Friday hiked the repo rate by 50 basis points to 5.40 per cent in order to contain the persistently high inflation. The decision was taken during the three-day monetary policy committee meeting, which commenced on Wednesday. Today's hike takes the repo rate above pre-pandemic levels of 5.15 per cent.
Raising interest typically suppress demand in the economy, thereby helping inflation to decline. In line with the global trend of monetary policy tightening to cool off inflation, the RBI has so far hiked the key repo rates -- the rate at which the central bank of a country lends money to commercial banks -- by 140 basis points.
In line, the standing deposit facility (SDF) rate will be 5.15 per cent and the marginal SDF will be 5.65 per cent. The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.
The RBI, meanwhile, retained its growth projection at 7.2 per cent, with Q1 at 16.2%, Q2 at 6.2%, Q3 at 4.1% and Q4 at 4%, for the current fiscal as it sees improvement in urban demand and gradual recovery in rural India aided by normal monsoon.
Unveiling the fourth monetary policy for the current fiscal, RBI Governor Shaktikanta Das said the central bank remains committed to price stability to put the country on a sustained path of growth. The RBI expects growth in the first quarter of the current fiscal at 16.2 per cent, which will taper to 4 per cent by the fourth quarter.
Das, however, cautioned that there are risks from the ongoing Russia-Ukraine war. The central bank in April slashed the GDP growth projection for 2022-23 to 7.2 per cent from its earlier forecast of 7.8 per cent.
The RBI also retained its retail inflation forecast for the current fiscal year at 6.7 per cent amid geopolitical developments and higher global commodity prices, hoping inflationary pressures to ease further. In its previous monetary policy review in June, it had projected retail inflation for 2022-23 at 6.7 per cent, up from the 5.7 per cent forecast in April.
RBI Governor Shaktikanta Das said inflation in the second and third quarters of the ongoing fiscal year is expected to remain above the upper tolerance level of 6 per cent. The central bank aims to keep retail inflation in a band of 2-6 per cent.
(With Agencies Inputs)
Posted By: Talibuddin Khan