RBI increases policy rate by 50 bps to counter inflation


The Hindu

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RBI increases policy rate by 50 bps to counter inflation

The monetary policy committee (MPC) of the Reserve Bank of India (RBI) has decided unanimously to increase the policy repo rate by 50 basis points to 5.4%, with immediate effect.

Consequently, the standing deposit facility (SDF) rate stands adjusted to 5.15 per cent; and the marginal standing facility (MSF) rate and the Bank Rate to 5.65%.

The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth, RBI Governor Shaktikanta Das said in his monetary policy statement on Friday.

Elaborating the MPC’s rationale for its decisions on the policy rate and the stance, he said against the prevailing adverse global environment, the MPC noted that domestic economic activity was resilient and progressing broadly along the lines of the June resolution of the MPC.

“Consumer price inflation has eased from its surge in April but remains uncomfortably high and above the upper threshold of the target. Inflationary pressures are broad-based and core inflation remains at elevated levels,” he said.

“The volatility in global financial markets is impinging upon domestic financial markets, including the currency market, thereby leading to imported inflation,” he added. Das said with inflation expected to remain above the upper threshold in Q2 and Q3, the MPC stressed that sustained high inflation could destabilise inflation expectations and harm growth in the medium term.

“The MPC, therefore, judged that further calibrated withdrawal of monetary accommodation is warranted to keep inflation expectations anchored and contain the second-round effects,” he said.

“Accordingly, the MPC decided to increase the policy repo rate by 50 basis points to 5.4%. The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth,” he added.

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