After Covid and Ukraine war, world facing another storm: RBI governor
RBI today raised benchmark repo rate was raised by 50 basis
PremiumThe Reserve Bank of India governor Shaktikanta Das today while announcing the central bank decision today said that the world has been confronted with one crisis after another over the last few years, leading to nervousness in financial markets. After covid and Ukraine war, the world is facing another storm, he said referring to the aggressive monetary policy tightening by several central banks across world and their signal for further hikes.
Indian economy continues to be resilient in midst of global turmoil and economic activity in the country remains stable in the face of such global challenges, the RBI governor said.
High frequency data for second quarter indicates economic activities remain resilient with private consumption picking up, the governor said. India's GDP grew by 13.5% in the April-June period this fiscal as the economy continued its recovery from the pandemic.
The RBI today lowered India's FY23 GDP growth forecast to 7% from 7.2% while maintaining FY23 retail inflation forecast at 6.7%. India's annual retail inflation rate accelerated to 7% in August, driven by a surge in food prices, and has stayed above the RBI's mandated 2-6% target band for eight consecutive months
The RBI governor said that the though the rupee has depreciated against the US dollar, the movement has been in an orderly manner as compared to other emerging market currencies. From April 1, 2022, to September 30, 2022, the rupee has depreciated 7.4%.
The US Federal Reserve's relentless and aggressive interest rate hikes over recent months have led to flight to safety, leading to pressure on emerging market assets. Indian rupee has hit record low against the dollar in recent days. Policymakers around the world are grappling with a sweeping shift away from their respective currencies and into the safe-haven dollar, raising worries of capital outflows and further damage to their economies.
The monetary policy committee of RBI today raised benchmark repo rate by 50 basis points, the fourth straight increase in the current cycle, as policymakers extended their battle to tame sustained above-target retail inflation rate.
The monetary policy committee (MPC), comprising of three members from the RBI and three external members, raised the key lending rate or the repo rate to 5.90% with a five out of six majority.
“Repo policy rate hike of 50 bps is in line with our expectations. Given the global adverse conditions we remain wary on the pressure on (the) INR and hence the need for continued rate hikes. We expect the MPC to hike 35 bps in the December policy. However, with inflation expected to fall within 6% threshold in 4QFY23, we expect the MPC to probably pause and assess the lagged impact of monetary tightening," said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank. (With Agency Inputs)
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