Mumbai: The RBI’s Monetary Policy Committee on Wednesday raised its key lending rate by 35 basis points to 6.25 per cent as inflation has started showing signs of easing and economic growth tapering.
Reserve Bank of India Governor Shaktikanta Das also announced the bi-monthly monetary policy on Wednesday (December 7) on the conclusion of the three-day of Monetary Policy Committee (MPC) meet.
Repo rate is the rate at which the RBI lends money to commercial banks. Repo rate is used by monetary authorities to control inflation. Increase in the repo rate means the cost of funds for banks will go up. In other words, this will disincentives banks from borrowing from the central bank.
This will reduce the money supply in the economy and arrest inflation.
Repo and reverse repo are part of RBI’s liquidity adjustment facilities.
“Global economy under midst of uncertainty; shortage of food and high fuel prices has affected poor most,” RBI Governor Shaktikanta Das said.
The RBI Governor also added that since core inflation is exhibiting stickiness, a caliberated monetary policy action is needed.
“The MPC’s majority view was to withdraw accommodative stance. Central bank’s action in line with market expectations,” he said.
The Governor also expressed confidence in the resilience of the Indian economy.
“Globally inflation remains high and broad based in the aftermath of Russia-Ukraine war,” he added.
The apex bank’s rate-setting panel had started on Monday brainstorming for the next round of monetary policy.
The RBI had hiked key benchmark lending rate by 50 basis points (bps) thrice since June over and above an off-cycle 40 bps increase in repo in May.
Several other experts too expect the rate hike to be in the range of 25-35 basis points on Wednesday.
On September 30, the RBI had hiked the key policy rate (repo) by 50 basis points with an aim to check inflation.
It was the third successive hike of 50 bps. Before the September hike, the central bank had raised the repo rate by 50 bps each in June and August, and 40 bps in May.
Consumer price index (CPI) based retail inflation, which the RBI mainly factors in while arriving at its monetary policy, is showing signs of modertaion but still remains above the central bank’s upper tolerance level of 6 per cent since January this year.
The inflation dropped to 6.77 per cent in October from 7.41 per cent in the preceding month, mainly due to easing prices in the food basket, though it remained above Reserve Bank’s comfort level for the 10th month in a row.
The GDP growth in the second quarter of the fiscal slowed to 6.3 per cent as against a growth of 13.5 per cent in the preceding three months.
The RBI has been tasked by the government to ensure the retail inflation remains at 4 per cent with a margin of 2 per cent. However, it failed to keep the inflation rate below six per cent for three consecutive quarters beginning January 2022. So it had to submit a report to the government detailing reasons for the failure to contain prices and remedial steps to rein in the price rise.
(With PTI inputs.)
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