Mumbai: The Reserve Bank of India on Friday hiked rates aggressively by 0.50 per cent due to “unacceptably high” inflation trend of around 7 per cent, according to Governor Shaktikanta Das.
Stating that there are signs that headline inflation, which has crossed the 6 per cent upper limit set for the RBI for six consecutive months, is peaking, Das on Friday said the policy move from here is “calibrated, measured and agile”. “Will and will happen depends on the dynamics.
The governor declined to provide any guidance on the way forward, pointing out that we live in a dynamic world where things are changing very rapidly.
He also noted that generally, guidance is tougher in a rate hike cycle than in a rate cut cycle.
“…inflation still remains at uncomfortably or unacceptably high levels and, therefore, monetary policy will have to act,” he told reporters after the central bank’s six-member rate setting panel decided to hike the repo rate. on which he lends 0.50 per cent to the system. Percent
It may be noted that prior to the policy announcement, many analysts expected the growth to be calibrated to 0.35 per cent, while some expected the RBI to be aggressive with 0.50 per cent growth.
“Monetary policy will be calibrated, measured and agile based on the unfolding dynamics of inflation and economic activity. The focus will be on ensuring safe and soft landing for the economy,” he said.
He said that steps have to be taken to control inflation and inflationary expectations in the economy.
He said the Monetary Policy Committee (MPC) in its call also took into account the development aspect.
The Governor also noted that as per RBI assessment, the Indian economy is currently an island of macroeconomic and financial stability in a turbulent ocean, and has suffered two black swan incidents of pandemic and Russian invasion of Ukraine.
Seeking to defend the deep rate cuts made during the pandemic, Das said that the roots of inflation are not in monetary policy actions of the past, but are caused by supply-side factors and international events.
As a relief to many, he reiterated that inflation is likely to peak and moderate going forward.
It may be noted that the MPC retained its FY13 forecast at 6.7 per cent, while the April-June 2023 quarter would see headline numbers at 5 per cent. Das’s statement on day one also mentioned the objective of achieving the 4 per cent CPI target.
Asked about the role of rupee depreciation in policy making, Das acknowledged that there is an impact of imported inflation, but added that the deliberations of the MPC were influenced by the overall inflation and growth aspects.
Without elaborating on the “volatility” for the RBI, Das said the central bank has no level for the rupee and intervenes only when it ensures that the currency moves smoothly.
The MPC also deliberated on the negative interest rates currently being earned, with Das terming it “a matter of concern”.
Responding to a question whether we have hit the neutral rate yet, Deputy Governor Michael Patra, who heads the key monetary policy function and also sits on the rate setting panel, said, “The route to the neutral rate is two miles. The stone is the journey”.
“The first milestone is when inflation is within the tolerance range and the second is when it aligns with the target,” he said.
This report is automatically generated from PTI news service. ThePrint assumes no responsibility for its contents.