RBI Governor Shaktikanta Das. file | Photo Credit: PTI
The Monetary Policy Committee (MPC) of the Reserve Bank of India on Wednesday raised the benchmark lending rate by 25 basis points (bps) to 6.5% as the RBI targets persistently high core or underlying inflation which it considers a risk appetite for the improving outlook. sees as for the economy.
Noting that the rate hike since May was still working its way through the system, Governor Shaktikanta Das said, “The MPC was of the view that it was necessary to keep inflation expectations stable, breaking the persistence of core inflation.” This calls for a more calibrated monetary policy action and thereby strengthening medium-term growth prospects”.
The MPC, which cut its CPI inflation forecast for the current fiscal to 6.5% from 6.7% estimated at its last policy meeting in December and cut its growth forecast for the first quarter of the fiscal beginning April by 70 bps increased to 7.8%. , also reiterated that it would remain focused on the return of housing. However, two of the panel’s six members voted against the majority decision to raise rates.
Responding to questions from reporters on the Adani Group, Mr. Das said that the Indian banking sector is strong and one case will not affect it.
“At this juncture, I would like to say that the Indian banking system including the NBFC sector continues to be resilient and robust. Based on our assessment, RBI’s large exposure guidelines have been fully complied with by all the banks. The strength, size and resilience of the Indian banking system is now too large and too robust to be affected by an individual incident or a single case,” the RBI governor asserted.
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“When banks lend money to a company, they do not lend on the basis of market capitalization of that particular company. They lend based on the strength of that company and fundamentals,” he added without naming any company or group.
Speaking on the economy, Mr Das said: “The Indian economy remains resilient…it has weathered the global shocks consistently over the last three years”.
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Noting that inflation has shown signs of softening and “the worst is behind us”, Mr Das said the RBI still cannot take its eyes off inflation. “We need to see a decisive moderation in inflation. We have to stick to our commitment to bring down inflation… Monetary policy has to be designed to ensure a sustainable deflationary process.’
The RBI chief said the real policy rate has moved into positive territory and the banking system has come out of the ‘chakravyuh’ of excess liquidity without any disruption. They said that <एसयू>Monetary policy transmission was also lifting.
Mr Das said the reduction in the size of the rate hike to 25 bps also provided elbow room to the RBI to weigh all incoming data and forecasts and determine appropriate action and policy stance.