The Reserve Bank of India hiked its key lending rate by 50 basis points, which was at the higher end of market expectations, to 5.40 per cent. That increase takes the repo rate to pre-pandemic level, the highest since 2019 and the third hike in a row.
Here Are Top Comments From RBI Governor’s Post Policy Press Conference:
- The monetary policy committee decided to raise the key repo rate to 5.40 per cent to tamp stubbornly high inflation, but we remain optimistic about domestic growth. The central bank ready to do whatever it takes, on all fronts.
- The bank was watchful of maintaining rupee stability and their interventions using foreign exchange reserves until now have helped contain volatility in the currency.
- The MPC believes “calibrated withdrawal of monetary policy accommodation is warranted to keep inflation expectations anchored and contain the second round effects. Monetary policy will be calibrated, measured and nimble from here on. India’s current account deficit will be manageable, the RBI has the ability to manage the gap.
- On the rupee depreciating against the US dollar, a 4.7 per cent decline, the rupee fared much better than several reserve currencies as well as many of its EME and Asian peers.
- The depreciation of the Indian rupee is more on account of the appreciation of the US dollar rather than weakness in macroeconomic fundamentals of the Indian economy. Market interventions by the RBI have helped in containing volatility and ensuring the orderly movement of the rupee.
- The financial sector is well capitalized and sound while the foreign exchange reserves – supplemented by net forward assets – provide insurance against global spillovers. “Our umbrella remains strong.”
- In spite of two “Black Swan” occurrences and several shocks, the Indian economy is an island of stability. Although inflation has peaked and will soon fall, the current pace is intolerably high.
- Inflationary pressures are broad-based and core inflation remains elevated. Inflation is projected to remain above the upper tolerance level of 6 per cent through the first three quarters of 2022-23, entailing the risk of destablishing inflation expectations and triggering second-round effects. With inflation expected to remain above the upper tolerance threshold in Q2 and Q3 of the current financial year, the MPC stressed that sustained high inflation could de-stabilize inflation expectations and harm growth in the medium term.
- Nevertheless, with strong and resilient fundamentals, India is expected to be amongst the fastest growing economies during 2022-23 according to the IMF, with signs of inflation moderating over the course of the year
- With growth momentum expected to be resilient despite headwinds from the external sector, monetary policy should persevere further in its stance of withdrawal of accommodation to ensure that inflation moves close to the target of 4 per cent over the medium term, while supporting growth.