RBI Governor Announces Rate Hike Of 40 Bps With Immediate Effect

Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday announced a 40 bps rate hike in the policy repo rate with immediate effect. He said that the Monetary Policy Committee (MPC) met between 2nd and 4th May and unanimously took the decision to hike the policy rate to 4.40 per cent keeping in view the persisting inflation.

"Recent GDP releases suggest that global economic research is losing pace," RBI Governor says.

Das exhibited the resilience of the Indian economy citing that India has also been able to preserve macro-financial stability despite of synchronised shocks of commodity prices, supply disruptions and higher inflation unleashed by the war.

The yields on 10-year India bonds rose to 7.19 per cent, as compared to 7.11 per cent in the previous day, while the benchmark stock indices Sensex and Nifty extended losses to over 2 per cent in Wednesday's afternoon deals.

Headline retail inflation in India rose to a 17-month high at 7 per cent in March led by a sharper than expected spike in prices of food and manufactured goods, official data showed. It has now remained over the RBI's upper tolerance band of 6 per cent for the third straight month.

On cash reserve ratio (CRR) Das said  "CRR hike can suck out liquidity to the tune of Rs 83,711.55 crore." He announced that the CRR goes up by 50 basis points to 4.50 per cent.

The RBI in its April monetary policy had kept its benchmark lending rate at a record low, keeping the repo rate unchanged at 4 per cent.

The MPC had opted to maintain its accommodative stance but had voted unanimously to focus on “withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth." 

Governor has gone with unscheduled address for the first time today after 2020. Das said, "The decision today to raise repo rate may be seen as reversal of rate action of May 2020. Last month, we had set out a stance of withdrawal of accommodation.Today’s action need to be seen in line with that action."