The Reserve Bank of India on Friday raised the repo rate by 50 basis points, the third straight increase since May in an effort to cool rigid high inflation and defend the rupee. The repurchase rate was raised by 50 basis points to lift the interest rate to the pre-pandemic level. The 5.40% repo rate was last seen in August 2019. The RBI’s six-member rate-setting panel voted unanimously on the rate hike decision while sticking to its resolve to withdraw the accommodative stance.
Announcing the rate hike, RBI Governor Shaktikanta Das did not offer any indication of a change in the stance or a possible pause in the next policy due in late September. “Inflationary pressures are broad-based and core inflation remains high. Inflation is projected to remain above the upper tolerance level of 6% through the first three quarters of 2022-23, entailing the risk of destabilizing inflation expectations and triggering second-round effects,” he said.
“The depreciation of the Indian Rupee is more on account of the appreciation of the U.S. dollar rather than weakness in macro-economic fundamentals of the Indian economy. Market interventions by the RBI have helped in containing volatility and ensuring the orderly movement of the rupee,” he added.
The RBI expects inflation at 2-6%. June was the sixth consecutive month when headline CPI inflation remained at or above the upper tolerance level of 6 %. Stating that there has been some let-up in global commodity prices, particularly in prices of industrial metals, and some softening in global food prices, the governor said domestic edible oil prices are expected to soften further on the back of improving supplies from key producing countries.
