Mumbai: Reserve Bank of India’s Governor Shaktikanta Das today announced the hike of the repo rate, the key lending rate, by 50 bps to 5.9 percent. Explaining the rationale behind the policy, the governor said the bleak global economic outlook, persisting inflation at an alarmingly level and the aggressive policies of advanced economies are the reasons behind the rate hike.
In the three-day meeting of the Monetary Policy Committee (MPC) which ended on Friday, five of the members of the MPC voted to hike the repo rate by 50 basis points (bps), the governor said.
On the sharp depreciation pressures of emerging markets’ currencies, the governor said: “Emerging market economies (EMEs), in particular, are confronted with challenges of slowing global growth, elevated food and energy prices, spillovers from advanced economy policy normalisation, debt distress and sharp currency depreciations.”
The rates for the standing deposit facility (SDF) and the marginal standing facility (MGF) were also raised by 50 basis points to 5.65 percent and 6.15 percent, respectively.
On RBI’s stance, he said, “Monetary policy had moved from neutral to accommodative stance in June 2019. At that time, the repo rate was 5.75 percent; headline CPI inflation was hovering around 3 per cent and was expected to be in the range of 3.4 to 3.7 percent in H2:2019-20 (second half of 2019-20)…”
The central bank had already hiked the key policy rate by 140 bps since May to 5.4 percent to cool off domestic retail inflation that has stayed above the RBI’s upper tolerance limit of 6 percent each month this year.
On India’s growth, Shaktikanta Das said, “Real GDP (gross domestic product) grew by 13.5 percent (year-on-year) in Q1FY22-23 (first quarter), surpassing the pre-pandemic level by 3.8 percent. This was led by robust growth in private consumption and investment demand.”
He also said there was a sustained revival in urban demand which should get a further impetus from the unfettered celebration of upcoming three festivals after two and half years of living with Covid-19 and that rural demand was also gaining gradually.
The MPC is responsible for fixing the benchmark interest rate in India. In the committee, three members are from RBI and three members are from outside.
