Sunday, December 10, 2023

RBI hikes repo rate by 50 bps to fight high inflation, tightening policies of advanced economies

- Advertisement -

Shaktikanta Das, governor of the Reserve Bank of India, stated today that the repo rate, which is the primary lending rate, will increase by 50 basis points to 5.9%. The governor gave an explanation of the policy’s justification, citing the unfavourable prognosis for the world economy, the persistence of alarmingly high inflation, and the aggressive monetary policies of advanced economies.

Five MPC members voted to increase the repo rate by 50 basis points (bps) during the three-day meeting of the Monetary Policy Committee (MPC), according to the governor.

“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 governor said in reference to the pressures that lead to sharp currency depreciation.

A 50 basis point increase was also made to the rates for the standing deposit facility (SDF) and the marginal standing facility (MGF), bringing them to 5.65 percent and 6.15 percent, respectively.
Regarding the RBI’s position, he remarked, “In June 2019, the stance of monetary policy changed from neutral to accommodating.”

The headline CPI inflation rate was then around 3% and was anticipated to be between 3.4 and 3.7 percent in H2:2019-20 (the second half of 2019-20), while the repo rate was at 5.75 percent at the time.

The RBI’s upper tolerance ceiling of 6% has been consistently exceeded by domestic retail inflation this year, prompting the central bank to increase the key policy rate by 140 basis points since May to 5.4 percent.

Shaktikanta Das commented on India’s growth, stating that “Real GDP (gross domestic product) increased by 13.5% (year over year) in Q1FY22-23 (first quarter), exceeding the pre-pandemic level by 3.8%. A strong rise in private consumption and investment demand drove this.

In addition, he stated that after two and a half years of coping with Covid-19, there was a steady rebound in urban demand, which should gain further momentum from the unrestricted celebration of the following three festivals. He also stated that rural demand was steadily increasing.

The benchmark interest rate in India must be set by the MPC. Three committee members are within RBI, and the remaining three come from outside.

Read more: PM Modi inaugurates Phase I of Ahmedabad Metro rail project

Latest news

Related news