The Reserve Bank of India (RBI) increased its key lending rate by 40 basis points to 4.40 percent with immediate effect on Wednesday. The cash reserve ratio was also increased by 50 basis points by the central bank. The monetary policy committee (MPC) made the decision during an off-cycle meeting with the central board on May 2-4.
Let’s have a brief look at the key highlights of RBI Governor’s address in 10 points
- The decision was made in response to growing inflation, geopolitical concerns, high crude oil prices, and global commodity shortages, according to RBI Governor Shaktikanta Das.
- Geopolitical tensions, rising commodity prices, and weakening external demand, according to the RBI, pose global spillover risks to the economy. Please click here to see top quotes from RBI Governor Shaktikanta Das.
- “The decision today to raise repo rate may be seen as reversal of rate action of May 2020. Last month, we had set out a stance of withdrawal of accommodation. Today’s action needs to be seen in line with that action,” Mr Das said.
- “I would like to emphasise that the monetary policy action is aimed at containing inflation spike and re-anchoring inflation expectation,” he said, adding that“high inflation is known as detrimental to growth”.
- This was the first boost in the policy rate since August 2018, raising borrowing costs for both businesses and consumers. The most recent unexpected rate hike cancels out the Covid-supported off-cycle rate drop in May 2020.
- The RBI also chose to keep its monetary policy accommodative while focusing on removing it in order to keep inflation in check in the future.
- The RBI Governor stated in his speech that food inflation is projected to continue high as a result of spillovers from global wheat shortages affecting domestic wheat prices, despite adequate domestic supplies.
- Edible oil prices may firm up as a result of the Russia-Ukraine conflict, as key producing countries have implemented export limits, he said.
- For the third month in a row, retail inflation exceeded the upper limit of the Reserve Bank of India’s target zone of 2-4 percent.
- The RBI’s off-cycle action comes ahead of the US Federal Reserve’s widely predicted 50-basis-point rate hike later on Wednesday.
Written By: Aryan (Internship Trainee )