RBI Hikes Repo Rate (LEAD-1) to Control Inflation

Shaktikanta Das

Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday announced an increase in the policy rate or repo rate by 50 basis points (bps) to 5.4 per cent. Repo rate is the interest rate at which RBI lends short-term money to banks.

Announcing the decision of the Monetary Policy Committee (MPC) during the three-day meeting, Das said it has been decided to increase the policy rate by 50 bps to 5.4 per cent with immediate effect.

The Fixed Deposit Facility (SDF) rate will be 5.15 per cent and the Marginal SDF 5.65 per cent.

The MPC Also Tried to Ensure That the Inflation Rate Remained Within the Target

According to RBI, due to the high level of inflation and flexibility in domestic economic activity, the MPC is of the view that further monetary policy changes are needed to contain inflationary pressures.

Shaktikanta Das said that the Monetary Policy Committee has decided to focus on withdrawing the soft policy stance to contain inflation.

Das said these decisions are in line with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent.

He Also Said That the Domestic Economy Continues to Grow

Das said the net foreign direct investment during the first quarter of FY2023 stood at $13.6 billion, which is higher than the $11.6 billion received during the same period last year.

Describing the domestic economic activity as resilient, he said that the southwest monsoon rainfall is 6 per cent above the Long Period Average (LPA). Kharif sowing is gaining momentum. High frequency indicators of activity are taking hold in the industrial and services sectors. Urban demand is consolidating while rural demand is gradually increasing.

Das said exports registered a growth of 24.5 per cent during April-June 2022, though there was some decline in July.

Non-oil non-gold imports strengthened, indicating strengthening domestic demand.

RBI said consumer price index (CPI) inflation eased to 7.0 per cent (y-o-y) during May-June 2022 from 7.8 per cent in April, though it still remains above target.

India’s Foreign Exchange Reserves Stood At $573.9 Billion on July 29

The RBI governor said that taking into account various factors, the real gross domestic product (GDP) growth estimate for 2022-23 has been retained at 7.2 per cent.

The real GDP growth rate for the first quarter of 2023-24 is projected to be 6.7 percent.

Featured Image via Instagram.com

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