Mumbai: The Reserve Bank may go in for 25 basis points hike in benchmark interest rate this time yielding to the pressure to bring down retail inflation and keep pace with global peers at the bi-monthly policy to be unveiled on Thursday.
The Monetary Policy Committee (MPC) of the Reserve Bank met for three days on April 3, 5 and 6 to take into account various domestic and global factors before coming out with the first bi-monthly monetary policy for fiscal 2023-24.
The Reserve Bank of India (RBI) has already increased the repo rate by a total of 250 basis points since May in a bid to contain inflation though it has continued to remain above the central bank’s comfort zone of 6 per cent for most of the time.
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.
The two key factors which the RBI Governor headed committee deliberated on intensely while firming up the next monetary policy were– elevated retail inflation and the recent action taken by central banks of developed nations especially the US Federal Reserve, the European Central Bank and Bank of England.
Having remained below six per cent for two months (November and December 2022), the retail inflation breached the comfort zone warranting action by the Reserve Bank.
The Consumer Price Index (CPI)-based inflation was 6.52 per cent in January and 6.44 per cent in February.
In all, the Reserve Bank will hold six MPC meetings in the fiscal 2023-24.
The central government has tasked the RBI to ensure that retail inflation remains at 4 per cent with a margin of 2 per cent on either side.
(With PTI inputs)
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