BackRBI shocks markets with 40 bps rate hike, intensifying inflation fight. Key highlights
The MPC raised the repo rate by 40 basis points (bps) to 4.40%, RBI Governor Shaktikanta Das said
PremiumIn a surprise move, the Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday announced that the MPC voted unanimously to increase the policy repo rate by 40 basis points (bps) to 4.40% with immediate effect, citing persistent inflationary pressures in the economy. This is RBI's first increase in borrowing rates since August 2018.
Persistent inflation pressures are becoming more acute, RBI Governor Shaktikanta 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 unscheduled statement comes ahead of the Federal Reserve’s rate decision on Wednesday, which is expected to see the US central bank’s most aggressive action to battle inflation in decades.
The yields on 10-year India bonds rose further to 7.36%, as compared to 7.11% in the previous day, while the benchmark stock indices Sensex and Nifty extended losses to nearly 2% in Wednesday's afternoon deals.
The RBI turned hawkish in its April policy as inflation jumped, shifting focus from growth to inflation. Headline inflation stood at 6.95% in March, breaching the RBI’s comfort level of 6% for a third consecutive month. Economists expect price pressures to surge further in the coming months.
RBI Governor Statement Key Highlights:
- Interest rate hike aimed at strengthening, consolidating medium-term economic growth prospects: RBI Governor
- Cash Reserve Ratio (CRR) raised by 50 bps to 4.50% effective May 21
- Nine out of the 12 food subgroups registered an increase in inflation in the month of March. High-frequency price indicators for April indicate the persistence of food price pressures: RBI Governor Shaktikanta Das
- Standing Deposit Facility (SDF) adjusted to 4.15%, Marginal Standing Facility (MSF) to 4.65%
- The MPC raised the key lending rate or the repo rate by 40 basis points to 4.40%, Das announced
- Das said that the RBI has deployed both conventional & unconventional tools to support growth
- Shortages, volatility in commodities and financial markets are becoming more acute: RBI Governor Shaktikanta Das
- We have demonstrated in the MPC that we are not bound by a set book of rules but be accommodative of changing scenarios, says Das
- Debt distress is rising in developing word, says Governor Das
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