RBI Hikes Key Lending Rate To 4.40%, First Time In 4 Years Over Surging Inflation: 10 Points

RBI hikes repo rate by 40 basis points to 4.40 per cent in surprise move

The RBI on Wednesday raised its prime lending rate by 40 basis points to 4.40 per cent with immediate effect. The central bank also increased the cash reserve ratio by 50 basis points. The Monetary Policy Committee (MPC) took this decision in an off-cycle meeting with the Central Board on May 2-4.

Let’s take a brief look at the salient features of RBI Governor’s address in 10 points

  1. RBI Governor Shaktikanta Das said that this decision has been taken in view of rising inflation, geo-political tensions, high crude oil prices and global commodity shortage, which has affected the Indian economy.

  2. RBI cautioned that the economy faces global spillover risks from geopolitical tensions, rising commodity prices and sluggish external demand. For top quotes from RBI Governor Shaktikanta Das, please click here.

  3. “Today’s decision to raise the repo rate can be viewed as a reversal of the May 2020 rate action. Last month, we had decided to take back the accommodation. Today’s action needs to be seen in line with that action,” Mr Das said.

  4. “I would like to emphasize that monetary policy action is intended to contain inflationary growth and realign inflation expectations,” he said, adding that “high inflation is seen as detrimental to growth”.

  5. This was the first hike in the policy rate since August 2018, which will increase the cost of borrowing for corporates as well as individuals. The latest surprise increase completely reverses the Covid-support off-cycle rate cut in May 2020.

  6. RBI also decided to remain accommodative with a focus on return of housing to keep inflation within the target.

  7. In his address, the RBI governor said food inflation is expected to remain high as global wheat shortage is impacting domestic wheat prices, even though domestic supplies remain comfortable.

  8. He said the Russo-Ukraine war could lead to a firming up of edible oil prices as major producing countries imposed export restrictions.

  9. Retail inflation hovered around 7 per cent in March and remained above the upper end of the RBI’s target band of 2-4 per cent for the third consecutive month.

  10. RBI’s off-cycle move also comes ahead of a widely expected 50 basis point hike by the US Federal Reserve later on Wednesday.

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