Shaktikanta Das Announces 50bps Repo Rate Hike, Focuses on Hosting Withdrawal


RBI Governor Shaktikanta Das on Wednesday announced the unanimous decision of the Monetary Policy Committee (MPC) to raise the repo rate – the key interest rate at which the central bank lends money to banks – by 50 basis points to 4.9%.

The RBI MPC also decided to remain focused on withdrawing its “dovish” stance to ensure inflation remains within target levels while supporting growth.

The RBI’s latest action comes at a time when central banks face the Herculean task of reining in inflation without slowing economic growth. The announcements are in line with the expectations of economists and bankers. A majority of economists in a CNBC-TV18 poll had pegged the June 8 rate hike at 50-100 basis points.

“The repo rate is still below pre-pandemic levels…The MPC noted that in such a challenging global environment, domestic economic activity is gaining traction…We will remain focused on reducing inflation closer to target and on macroeconomic stability,” Governor Shaktikanta Das said.

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Shaktikanta Das Announces 50bps Repo Rate Hike, Focuses on Hosting Withdrawal
The monetary policy panel decided to keep its real GDP growth forecast for the year ending March 2023.
Shaktikanta Das Announces 50bps Repo Rate Hike, Focuses on Hosting Withdrawal
The MPC, however, raised its forecast for retail inflation – measured by the consumer price index – by 100 basis points to 6.7%. Das acknowledged that inflation accelerated at a faster pace than expected in April and May. It is expected to be above 6% by December 2022, mainly due to high food prices, he said.
Shaktikanta Das Announces 50bps Repo Rate Hike, Focuses on Hosting Withdrawal

Economists welcomed the central bank’s announcements and stance.

“I am very happy that the RBI removed the word ‘accommodative’. I was actually looking for a calibrated tightening, but maybe they will wait until the repo rate reaches pre-pandemic level,” Kaushik Das said. , chief economist at Deutsche Bank.

“It’s almost like saying, ‘We’re more neutral than before.’ That’s one thing I would take away from the position. And second, the action is clear that they will want to remove the pandemic-related housing that was there,” said Indranil Pan, chief economist at Yes Bank.

On May 4, Das had announced the MPC’s decision to raise the repo rate from a record low to 4.4% and raise the cash reserve ratio (CRR) – the amount of cash commercial banks must keep. with the RBI – from 50 basis points to 4.5%.

Official data released last month showed India’s official GDP growth hit a four-quarter low of 4.1% on an annual basis during the January-March period. Economic growth for the full year ended March 2022 came in at 8.7% due to a weak base from the previous year, although lower than the Bureau of Economics estimate of 8.9%. statistics.

First post: STI


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