Connect with us

The Plunge Daily

RBI hikes interest rate by 40 bps to 4.4 pc, first since May 2020

RBI hikes interest rate by 40 bps to 4.4 pc, first since May 2020


RBI hikes interest rate by 40 bps to 4.4 pc, first since May 2020

The Reserve Bank on Wednesday hiked its benchmark interest rate by 40 bps in an unscheduled policy review with a view to contain inflation. The RBI also announced a hike in cash reserve ratio (CRR) by 50 basis points to 4.5 per cent, effective May 21, which will take out Rs 87,000 crore liquidity from the system. The decision was announced by RBI Governor Shaktikanta Das after an off-cycle meeting of the rate-setting panel — Monetary Policy Committee (MPC).

CRR is a percentage of a bank’s total deposits that it needs to maintain as liquid cash. The MPC also decided to raise the repo rate or the short-term lending rate by 40 basis points to 4.4 per cent.

He said the decision was taken in view of the rising inflation, geo-political tensions, high crude oil prices and shortage of commodities globally, which have impacted Indian economy. The sharp acceleration in consumer price index (CPI) inflation in March 2022 to 7 per cent was propelled in particular by food inflation, the RBI Governor said.

Nine out of the 12 food subgroups registered an increase in inflation in the month of March. High-frequency price indicators for April indicated the persistence of food price pressures, according to the RBI Governor. India’s 10-Year benchmark bond yield was up at 7.41 per cent after RBI raised its policy rate.

Also Read: Amazon doubles cumulative export target from India to USD 20 billion by 2025

Das also said that MPC will retain its accommodative monetary policy stance at a time when globally inflation is rising alarmingly even as investment activity is showing some traction in the country.

“The MPC judged that the inflation outlook warrants an appropriate and timely response through resolute and calibrated steps to ensure that second-round effects of supply-side shocks on the economy are contained and long-term inflation expectations are kept firmly anchored,” Das said.

To Top