Das said that MPC will retain its accommodative monetary policy stance at a time when globally inflation is rising alarmingly even as investment activity is showing some traction in the country
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The Reserve Bank of India's monetary policy committee raised the key lending rate by 40 basis points on Wednesday, citing persistent inflationary pressures in the economy, governor Shaktikanta Das announced.
The MPC raised the key lending rate or the repo rate by 40 basis points to 4.40%, Das said.
The RBI's repo rate has been kept unchanged at 4 per cent since May 2020.
Let's understand more about the rate hike from the industry experts:
Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank
RBI has shifted towards hawkishness acknowledging the increasing upside risks to inflation. The withdrawal of accommodation tilt is clear by the normalisation of the effective policy corridor to pre covid levels of 50bps. We expect the MPC to change the policy stance to neutral in the June policy. The repo rate hikes will follow from August. We see 50bps repo rate hike in FY23.
Terming the hike in the repo rate by 40 bps to 4.40 per cent with immediate effect as ‘the obvious fallout of the impact which the Ukraine conflict has had on global inflation’; which in turn, has also impacted the Indian economy, Dr Niranjan Hiranandani described the move as a short-term reaction to crude prices and impact of inflation on commodities. “In some places, this will be seen as a pro-active step, in expectation of the US Fed’s expected move tomorrow,” he added.
From a real estate perspective he said he hoped the hike in repo rates will not impact home loan interest rates; and that the regulator will ensure that inflationary pressure on the individual does not get exacerbated by hiked rates of home loans.
The RBI move comes with the backdrop of India’s inflation rates soaring to a highs, with retail inflation in March being on a 17-month high. “Inflation rates in India have been beyond the RBI’s upper band of tolerance, which is 6 per cent, and the rationale of the move makes sense – the hope being that home loans would not get impacted,” he concluded.
Vijay Kalantri, Chairman, MVIRDC World Trade Center Mumbai
Even though the policy rate hike may increase borrowing cost for industry, this is an appropriate action given the relentless rise in inflation and likely interest rate hike by US Federal Reserve in a crucial policy announcement later today.
India’s WPI inflation has been in double digits for the last more than 12 months and CPI inflation is above the RBI target for the last three consecutive months.
We expect RBI to unwind the accomodative policy stance in the coming months due to sustained inflation pressure and hence the onus of supporting economic growth will fall on the central government.
Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities
“The combination of 40 bps hike in repo rate and 50 bps hike in CRR is an attempt by the RBI to preempt the rising inflationary pressures and be ahead of the curve. The bigger surprise was the CRR hike which indicates the RBI’s intent on withdrawing liquidity at a sharper pace. While inflation is unlikely to decline in the near term, today’s move should help in pushing real rates towards neutral over the next few quarters. Rates across the curve will reprice factoring in a markedly more hawkish RBI. We continue to expect cumulative 100-125 bps of repo rate hikes in FY2023.”