Tuesday, July 5, 2022

RBI rate hike a surprise, says Nirmala Sitharaman

The Reserve Bank of India’s (RBI) move to raise the policy rate is part of a synchronised action by the central banks, Union Finance Minister Nirmala Sitharaman has said, adding that it came as a surprise only because it was done between two monetary policy reviews.
RBI, for the first time since August 2018, had on May 4 delivered a blunt 40 basis points increase in key repo rate to 4.40 per cent.
“It is the timing which came as a surprise to many, but the act people thought should have been done anyway – to what extent could have varied,” she said at The Economic Times Awards for Corporate Excellence in Mumbai on Sunday. “It came as a surprise because it came between two monetary policy reviews.”
Reserve Bank of India Governor Shaktikanta Das on Wednesday said that the Monetary Policy Committee (MPC) of the central bank, in an off-cycle meeting, hiked the repo rate by 40 basis points (bps) to 4.40 per cent with immediate effect.
Repo rate is the rate at which the central bank lends short-term funds to banks. The RBI has cut the repo rate by 250 basis points since February 2019 to help revive the growth momentum. The Monetary Policy Committee has been on a prolonged accommodative stance to support growth.
The central bank also hiked the cash reserve ratio by 50 basis points to 4.5 per cent after an unscheduled meeting of the rate-setting panel, citing increased inflation pressures following the Ukraine war and the resultant spike in crude oil prices.
The move was taken in order to contain inflation.
Retail inflation printed at 6.9 per cent in March and the April reading is forecast to top 7.7 per cent.
However, she was quick to assert that the central bank’s decision will not impact the government’s planned huge infrastructure investments running into tens of billions of dollars.
On the economic sanctions against Russia after its invasion of Ukraine, she said the blockades were constraining us as traditional buyers from Russia were shifting to sources from the Indian basket of crude, 80-85 per cent of which is from the Middle East. This shift was likely to put more pressure on the Indian crude basket price.


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