Money has dropped. After strenuously working to contain inflation, which has consistently eroded consumer purchasing power and derailed macroeconomic momentum, the RBI’s rate setting panel on Wednesday Announces ‘off-cycle’ hike in benchmark interest rates, The Monetary Policy Committee voted to raise the policy repo rate by 40 basis points to 4.4% with immediate effect. RBI Governor Shaktikanta Das argued that allowing inflation to remain high at current levels for too long risks ‘de-anchoring inflationary expectations’ and consequently harming growth and financial stability. Whereas Russia’s invasion of Ukraine And the subsequent Western sanctions on Moscow have affected the outlook for prices of several commodities including wheat, edible oil, crude oil and coal, with Indian households’ sentiment and inflation expectations operating well above the RBI’s upper tolerance limit of 6. . % for more than two years. That the RBI has now been compelled to act, after insisting that price pressures were ‘temporary’, is a welcome acknowledgment of late that the economic cost of failing to stabilize price stability is likely. may be more harmful to development. Availability of low cost credit. To quote Mr. Das: “Sustained high inflation … harms savings, investment, competition and production growth. It has adversely affected the poorer sections … by reducing their purchasing power.”
Explaining its decision to raise the cost of borrowing for the first time in 45 months, the MPC acknowledged that the overall outlook for inflation has turned quite dark as it met last month. Globally, prices are volatile and inflationary pressures are mounting around the world. The IMF said last month that the war in Ukraine was set not only to slow global growth in 2022, but that inflation in advanced economies would rise 2.6 percentage points to 5.7% this year, and a more appreciable uptick of 2.8 percentage points. In the case of emerging market and developing economies. with central banks in advanced economies led by US Federal Reserve Taking the route of policy normalization, the prospects of volatility in capital flows adding pressure to the exchange rate and consequently the risk of imported inflation has certainly queued the pitch for RBI. The fact that the novel coronavirus is still lurking and could trigger a new wave of infections, as seen in China, significantly adds to the uncertainty. Monetary authorities have rightly pointed out the inflationary impact of the increase in the prices of domestic pumps of petroleum products. It is now entirely on the RBI and the fiscal authorities to proceed in lockstep and take all possible measures, including cutting fuel taxes, to keep inflation at bay and bring the economy to a standstill.