RBI increases lending rate by 50 basis points

Yet again, the monetry policy committee (MPC) of Reserve Bank of India has increased the policy rate by 50 basis points with immediate effect, to 5.4%.

This is the third hike in the last three months.

The RBI caught markets off guard with a 40 bps hike at an unscheduled meeting in May, followed by 50 bps increase in June, but prices have shown little sign of cooling so far.

While announcing the MPC decisions in the press conference in Mumbai, RBI Governor Shaktikanta Das said, Indian economy has been grappling with high inflation. The MPC has decided to focus on withdrawal of accommodative policy stance to check inflation, he added.

The consumer price inflation remains uncomfortably high, with inflation expected to remain above 6%, the MPC report said. The RBI has projected inflation for the financial year 2022-23 at 6.7% on assumption of normal monsoon and crude oil at USD 105/barrel.

The RBI has retained its economic growth projection at 7.2% for the current fiscal.

The country is facing USD 13.3 billion capital outflow in last few months. While the financial sector remains well capitalised, India’s forex reserves provide insurance against global spillovers, he said. Domestic economic activity showing signs of broadening; rural demand shows mix trend, he observed.