RBI hikes repo rate by 40 bps to 4.0% with immediate effect: Governor

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“Shortages and volatility in commodities and financial markets are becoming more acute,” Shaktikanta Das said.

In an unscheduled policy review with a view to contain inflation, Reserve Bank of India (RBI) governor Shaktikanta Das on Wednesday announced that MPC voted unanimously to increase the policy repo rate by 40 basis points (bps) to 4.40 per cent with immediate effect.

“Shortages and volatility in commodities and financial markets are becoming more acute,” Das said in an online briefing, adding that there is a risk prices stay at this level for “too long” and expectations become unanchored. The bank’s next scheduled rate decision isn’t until June 8, reported Bloomberg.

The government has intensified the battle against inflation that’s outpaced its expectations for much of the year. In its first unscheduled rate change since the depths of the pandemic, the RBI increased its repurchase rate to 4.40 per cent, from the record low 4 per cent its been held at for the past two years to support the economy.

RBI policymakers have begun signalling recently that higher rates were in the works as consumer prices breached the upper limit of the bank’s target through the first quarter of 2022, Bloomberg added.

Increases in fuel and food prices, exacerbated by Russia’s invasion of Ukraine and sustained pandemic-related supply chain disruptions, have run hotter than the RBI had expected for much of this year. Headline inflation in March rose to a 17-month high of 6.95 per cent, riding above the RBI’s 2 per cent-6 per cent target range for a third month.

The RBI in April raised its inflation forecast to 5.7 per cent for the fiscal year that started April 1, up from its 4.5 per cent in February, and said it sees gross domestic product growth during the year at 7.2 per cent, compared with a previous expectation of 7.8 per cent.

 



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