The Reserve Bank of India’s Monetary Policy Committee (MPC) on Friday announced a 50 basis point hike in the repo rate to 5.40 per cent.
The Standing Deposit Facility (SDF) rate is now at 5.15 per cent, while the Marginal Standing Facility (MSF) Rate stands at 5.65 per cent. The SDF represents the lower band of the interest rate corridor and the MSF the higher.
With the latest hike from the six-member Monetary Policy Committee (MPC), the repo rate now stands at 5.4 percent. Repo is the rate at which the central bank lends short-term funds to banks. Changes in this rate typically gets transmitted to the broader banking system. The MPC has cumulatively hiked repo rate by 140 bps in the current rate hike cycle.
On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting today (August 5, 2022) decided to:
- Increase the policy repo rate under the liquidity adjustment facility (LAF) by 50 basis points to 5.40 per cent with immediate effect.
- Consequently, the standing deposit facility (SDF) rate stands adjusted to 5.15 per cent and the marginal standing facility (MSF) rate and the Bank Rate to 5.65 per cent.
- The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.
- These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.
“With inflation expected to remain above the upper threshold in Q2 and Q3, the MPC stressed that sustained high inflation could destabilise inflation expectations and harm growth in the medium term,” said Reserve Bank of India (RBI) Governor Shaktikanta Das in his statement.
“The inflation trajectory is now poised at a decisive point. While there are incipient signs of a confluence of factors that could lead to further softening of domestic inflationary pressures, there remain significant uncertainties,” Das said.
“Financial markets have remained uneasy despite intermittent corrections. We have witnessed large portfolio outflows to the tune of US$ 13.3 billion during the current financial year so far (up to August 3). 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. Export of goods and services together with remittances are expected to keep the current account deficit within sustainable limitsâ€, the statement reads.
