RBI monetary policy: Repo rate hiked by 50 bps; third consecutive rise
The Monetary Policy Committee (MPC) of the RBI has unanimously decided to increase the repo rate by another 50 basis points – one basis point is one hundredth of a percentage point taking it to 5.4%, a level last seen in September 2019. This is the third consecutive rate hike by the MPC since its unscheduled May 2022 meeting. RBI increasing interest rates was widely expected and a Bloomberg forecast of economists had correctly predicted the 50 basis point interest rate hike. The MPC has justified the decision by saying that “calibrated monetary policy action is needed to contain inflationary pressures, pull back headline inflation within the tolerance band closer to the target, and keep inflation expectations anchored so as to ensure that growth is sustained”. However, there has been no change in the stance of monetary policy which will continue to “remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth”. Also Read: RBI set to hike policy repo rate tomorrow; your home loan EMIs may go upTo be sure, the MPC has retained its inflation and GDP growth projection for the fiscal year 2022-23 at 6.7% and 7.2%, respectively. Consumer Price Index (CPI) is expected to be 7.1% in the quarter ending September 2022, 6.4% in the quarter ending December 2022 and 5.8% in the quarter ending March 2023, as per the projection. The inflation projections are based on an assumption of a normal monsoon and average crude oil price of $105 per barrel, the MPC resolution said. The MPC decision comes in the wake of some easing in inflation numbers in the month of May and June – CPI was at 7% in June 2022 compared to 7.8% in April 2022 – even though they continue to remain above the 6% threshold, which is the upper limit of RBI’s tolerance band under India’s inflation targeting framework. The RBI’s decision to hike rates could lead to further increase in mortgage costs and other interest rates, potentially generating headwinds for demand. To be sure, some experts said that because banks have already raised interest rates significantly, they might not pass on the full burden of the latest increase in policy rates. “The Indian economy is holding steady and progressing in an ocean of turbulence and uncertainty”, governor Shaktikanta Das said, in his statement after the MPC meeting. “We, in the RBI, reiterate our commitment to maintain price and financial stability to place our economy on a sustainable path of growth. Our actions have helped the economy to tide over a series of shocks in the last two and half years. We are seized of our role at this critical juncture and will persevere in our efforts to ensure a safe and soft landing”, Das added.
ABOUT THE AUTHOR
Roshan Kishore is the Data and Political Economy Editor at Hindustan Times. His weekly column for HT Premium Terms of Trade appears every Friday.
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