RBI announced a 50 bps hike in the repo rate stepping up its fight against inflation.

The Reserve Bank of India (RBI) on September 30 announced a 50 basis points hike in the repo rate stepping up its fight against persistently high inflation. Repo is the rate at which the central bank lends short-term funds to banks. One bps is one-hundredth of a percentage point. With the latest rate hike, the new repo rate stands at 5.9 percent.

Announcing the policy decision, RBI Governor Shaktikanta Das pointed out the worry of the rate-setting panel on inflation and said the central bank is watching the price situation closely. A 50 bps increase in the repo rate this week is the fourth consecutive one since May. This has taken the repo rate, at which the RBI lends short-term funds to banks, to 5.90 percent – the highest level since April 2019 from 5.40 percent.

The Monetary Policy Committee (MPC) began its three-day meeting on September 28 and will announce the outcome on September 30. The MPC has hiked the policy repo rate by 140 basis points since May to control inflationary pressure.  The consumer price index (CPI) based on retail inflation, which had started showing signs of moderation since May, has again firmed up to 7 percent in August. The RBI takes into account retail inflation while framing its bi-monthly monetary policy.

At the post-policy presser, RBI Governor Shaktikanta Das said that they will write a letter to the government explaining the failure to meet the inflation target below 6 percent.

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