RBI raises policy rate as expected, loans set to get more expensive | Economic news

By on June 8, 2022 0

Mumbai: The Reserve Bank of India’s policy rate was hiked by 50 basis points on Wednesday as widely expected, in the second hike in as many months, in a bid to quell still-high inflation.

The Monetary Policy Committee (MPC) raised the key rate or repo rate by 50 basis points (bp) to 4.90%.

The standing deposit facility rate and the marginal standing facility rate were adjusted upward by the same amount to 4.65% and 5.15%, respectively.

RBI Governor Shaktikanta Das had said a June 8 move was “a no-brainer”. But analysts polled by Reuters were split on the amount of the hike, with forecasts of between 25 and 75 basis points.

Wednesday’s increase follows a 40 basis point hike in early May at an unscheduled meeting that kicked off the central bank’s tightening cycle, which economists expect to be relatively short.

“Upside risks to inflation, as highlighted in recent policy meetings, materialized earlier than expected,” Das said after the policy decision.

He said inflation was likely to remain above the RBI’s upper tolerance range in the first three quarters of the fiscal year which started on April 1.

Retail price inflation in April accelerated to 7.79% from a year earlier, above the RBI’s tolerance range for inflation of 2% to 6% for a fourth consecutive month, and a further rise in global prices for crude oil, food and other raw materials is expected to maintain upward pressure.

The price spikes have hammered consumer spending and clouded the near-term outlook for India’s economic growth, which has slowed to a one-year low in the first three months of 2022.

The Indian central bank maintained its growth projection at 7.2% for 2022/23.

The central bank had cut the repo rate by a total of 115 basis points since March 2020 to soften the blow of the COVID-19 crisis.

The yield on India’s benchmark 10-year bond fell to 7.5% after the policy decision, while the rupiah strengthened against the dollar to 77.69.