The Reserve Bank of India (RBI) has increased the repurchase rate (repo) by 50 basis points, the biggest in more than a decade.
The Reserve Bank of India (RBI) has increased the repurchase rate (repo) by 50 basis points, the biggest in more than a decade.
Home, auto and other loan EMI will increase after this Reserve Bank of India (RBI) The key interest rate was hiked by 50 basis points on Wednesday to rein in the rise in prices, the second hike in five weeks, which was seen to continue hurting consumers in the near term.
The 50 bps hike in the lending rate or repurchase rate (repo), the biggest in more than a decade, to 4.90% came after a 40 bps hike in an unscheduled meeting last month, closing the tight cycle.
Simultaneously, the pandemic-era liberal stance was lifted, meaning there could be more increases to moderate inflation, as the start of the year is hovering above the central bank’s upper tolerance limit.
RBI Governor Shaktikanta Das, while announcing the bi-monthly monetary policy, said, “Inflation has risen significantly above the upper tolerance level (6%).” “The upside risk to inflation, as highlighted in previous policy meetings, has materialized earlier than expected.” RBI raised inflation Forecasts for the current financial year (April 2022 to March 2023) range from 5.7% to 6.7% earlier on expectations to remain above the 2-6% tolerance band in the first three quarters (by December-end).
The law stipulates that the central bank must clarify in writing to the government its failure to keep inflation within the target band if prices remain above 6% for three consecutive quarters. It will also have to suggest remedial measures to bring the prices under control.
To balance the inflation-growth dynamics, Das said the RBI will focus on return of housing as system liquidity remains above pre-pandemic levels. However, the return of housing will be done in such a way that the development continues to get adequate support, he said.
“We have dropped the word (adjustment), but we remain lenient and this is mainly to give more clarity to the market,” he said.
However, the Monetary Policy Committee (MPC) has retained its economic growth forecast at 7.2 per cent.
While food, energy and commodity prices remained high, it suggested that most of the additional inflation is due to global/supply-side factors. Retail inflation in April rose to 7.79% from a year ago.
Mr Das said 75% of the increase in inflation forecast by 100 basis points is due to the rise in food prices which is due to the war in Ukraine.
“The war has led to the globalization of inflation,” he said.
The rate hike on May 4 and Wednesday came as the RBI kept the interest rate at a record low of 4% for 11 consecutive times.
Mr Das mentioned that even after the hike, the policy rate remains below the pre-pandemic level of 5.15%.
RBI cut the repo rate by a cumulative 250 basis points from February 2019 to help revive the growth momentum. This includes a reduction of 115 bps between March 2020 and May 2020 to cushion the blow from the COVID-19 crisis.
Meanwhile, Ajay Seth, Secretary, Department of Economic Affairs, said that the monetary and fiscal authorities are taking steps to contain inflation and spur growth.
“There are domestic challenges and there are major challenges in the global scenario. Whatever happens for the monetary and fiscal authorities, they are taking action. We are (working) to bring down inflation (and) at the same time Let’s continue the development efforts as before,” Mr. Seth told reporters.
Suman Choudhary, Chief Analytical Officer, Acuite Ratings & Research, said, “We believe more rate hikes are likely in the next 2-3 policy meetings, as the RBI revised its headline inflation forecast sharply upward. has done.” “However, the extent of the subsequent hike will depend on the inflation print, the performance of the monsoon and its impact on food prices over the next few months as well as the effectiveness of the price control measures undertaken by the government.” HDFC Securities MD and CEO Dheeraj Reilly said that given a review of the pre-COVID repo rate of 5.15% in the next 1-2 meetings, most economists expect it to move above that level.
Other measures announced by the RBI on Wednesday include raising the housing loan limit by cooperative banks and rural cooperative banks to allow lending to residential housing projects.
Urban co-operative banks have also been permitted to provide door-to-door services to customers.
The e-mandate limit on the card has been increased from ₹5,000 to ₹15,000 per transaction for recurring payments like membership, insurance premium and education fees.
RBI proposed to allow linking of credit cards with UPI. Firstly, RuPay credit cards will be enabled with this facility.
UPI currently facilitates transactions by linking savings/current accounts through debit cards of users.