The Reserve Bank of India RBI hiked its key lending rates over to the pre-pandemic level by 50 basis points to 5.40 per cent, on Friday. It’s the third attempt or hikes to tame the surging inflation which remains standing above the safe benchmarked value set by the RBI.
RBI Hiked Key Lending Rates Third Time
Seeing the June inflation rate at 7 per cent, higher than RBI’s benchmarked 2-6 per cent target, the Monetary Policy Committee (MPC) hiked the key lending rates of repo rates by 50 bps to 5.40 per cent. The rates are now over the pre-pandemic levels, which was 5.15 per cent, being highest since 2019.
“The RBI continued to ‘front-load’ its rate hikes in line with our expectations. The central bank highlighted that while inflation might moderate in the coming months, uncertainty around these pressures continues to remain high, necessitating the need for a 50-bp rate hike. Expect the RBI to take the repo rate to 5.75 per cent in this cycle,” said Sakshi Gupta, HDFC Bank.
Monetary Policy Committee’s Unanimous Decision
Monetary Policy Committee’s all six members, including the Head Governor Shaktikanta Das, all voted to agree to hike the repo rates.
This is the third hike from RBI, before that they surprised everyone with a 40 bps hike decided in an unscheduled meeting in May, and then everyone saw the second hike of 50 bps in June.
“Retail inflation, based on the Consumer Price Index (CPI), which RBI factors in while fixing its benchmark rate, stood at 7.01 per cent in June. Inflation has been ruling above the RBI’s comfort level of 6 per cent since January this year and the Governor expects that trend to continue,” quoted by NDTV.
The inflation rate based on the Wholesale Price Index (WPI) has remained high for 15 months continuously, in June it was 15.18 per cent.
In April, the GDP growth projection rate was also slashed by the RBI to 7.2 per cent from the 7.8 per cent.
As for Rupee, “the Indian currency has held up well against the global trend of capital flows into the dollar. He stressed that flows into dollar-denominated assets have been unprecedented and have impacted every currency, be it developed or emerging”, the Governor said.