RBI Governor warns of rise in inflation
India's monetary policy committee (MPC) raised rates by 40 basis points amid rising inflation concerns. The central bank raised the cash reserve ratio for banks by 50 basis points in an effort to pull out a large surplus of liquidity in the system. Alongside, the cash reserve ratio has been raised by 50 basis points to 4.5%.
RBI Governor Shaktikanta Das said that the inflation outlook needs a purposeful and timely response to ensure that long-term inflation expectations are fixed. An MPC action at this juncture will help ensure macroeconomic stability.
The repo rate was increased to 4.4% from 4%. The standing deposit facility will be offered at 4.15%, 25 basis points below the repo rate. The marginal standing facility will be offered at 4.65%; 25 basis points above the repo rate. The reverse repo rate stands unchanged at 3.35%.
MPC said, “The MPC also decided to remain accommodative while focusing on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth. In this milieu, the MPC expects inflation to rule at elevated levels, warranting resolute and calibrated steps to anchor inflation expectations and contain second round effects.”
The MPC's resolution stated that heightened uncertainty surrounds the inflation trajectory, which is heavily contingent upon the evolving geopolitical situation.
The resolution further stated that the worsening external environment, elevated commodity prices and persistent supply bottlenecks pose formidable headwinds, along with volatility spillovers from monetary policy normalisation in advanced economies. “On balance, the Indian economy appears capable of weathering the deterioration in geopolitical conditions but it is prudent to continuously monitor the balance of risks,” it stated.
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