Rbi Governor Shaktikanta Das announces 40 bps repo rate and 50 bps Crr hike as inflation weighs

Reserve Bank of India Governor Shaktikanta Das has announced that the Monetary Policy Committee has decided to raise lending rates by 40 basis points to 4.40%.

The MPC also decided to remain dovish while focusing on the pullback and thus a reversal in rate action in 2020 which saw 75 basis points shaved off after the global economy entered turmoil due of the COVID-19 pandemic.

Therefore, in line with this, the MPC decided to increase the Cash Reserve Ratio (CRR) by 50 basis points to 4.5% effective May 21. According to research from CNBC-TV18, this hike will mean a withdrawal of around Rs 85,000 crore from the system.

The RBI governor said high-frequency indicators for April point to persistently high food inflation and “this pressure is likely to continue.”

“Liquidity conditions need to be modulated depending on the policy direction,” Das said, adding that “MPC has decided to hold an off-cycle meeting to reassess inflation-growth dynamics. There is a risk inflated inflation collateral for a long time.”

Thereafter, the Standing Deposit Facility (SDF) is adjusted to 4.15% and the Marginal Standing Facility (MSF) to 4.65%.

The RBI had kept its key rate at a record high, keeping the repo rate unchanged at 4% in April monetary policy.

Rbi Governor Shaktikanta Das announces 40 bps repo rate and 50 bps Crr hike as inflation weighs 10-year bond yield rises to 7.4% on RBI rate hike

The Indian bond market came under pressure following the announcement. The yield on the 10-year bond (6.54%, 2032) that the market is following, rose above 7.4% from the previous day’s close of 7.12%.

Markets were in the red ahead of the RBI presser and continued their bearish trajectory. The Nifty 50 was down nearly 400 points while the Sensex has racked up over 1,500 points as of 3:05 p.m. IST.

“I’m not concerned about the short term market reaction but over a few months or medium term I don’t think this is a spoiler show. It was in line with expectations and large foreign institutional investors (FIIs) will be relieved. that the central bank is not being pushed towards the theme of growth given that the election is not too far away by the government not raising the rise when there are so many imperatives due to inflation said Nirmal Jain, Founder and Chairman of the IIFL Group.

Reacting to the CRR hike, Soumya Kanti Ghosh, Group Chief Economic Advisor at State Bank of India, said: “The CRR move is a smart policy as it could open up space for liquidity operations and this may give back to the system in another form, so this should give the RBI the opportunity to address the duration, supply in the market while absorbing some of the liquidity.

Meanwhile, the US Fed is expected to rise 50 basis points, and then the Fed Chairman is likely to signal another 50 basis points at the next meeting.

Market watchers around the world have their eyes on the US Federal Reserve, which will announce its rate decision later tonight. Almost all Federal Open Market Committee (FOMC) policymakers who have spoken since the last meeting in March have indicated varying degrees of comfort with a 50 basis point (bps) rise.

(Edited by : Abhishek Jha)

First post: STI


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