RBI’s MPC hikes policy rate by 50 bps to counter inflation

The monetary policy committee (MPC) of the RBI  has decided unanimously to hike the policy repo rate by 50 basis points to 5.4 percent, with immediate effect. 

Effectively, the standing deposit facility (SDF) rate stands adjusted to 5.15 per percentd the marginal standing facility (MSF) rate and the Bank Rate to 5.65 peprcent. 

Shaktikanta Das, governor of the RBI, said in his monetary policy statement on Friday that the MPC also resolved to continue focusing on the  ithdrawal of accommodation to make sure that inflation stays within the goal moving forward while promoting growth.

He explained the MPC's reasoning for its choices on the policy rate and the attitude, noting that despite the current unfavourable global environment, domestic economic activity was resilient and was generally moving in the direction of the MPC's June resolution.

"Consumer price inflation has subsided from its April spike, but it is still alarmingly high and above the desired upper bound. Core inflation is still high and there are widespread inflationary pressures, the economist noted.  "Global financial market instability is having an impact on domestic financial markets, especially the currency market, and is resulting in imported inflation," he said.

He said, the MPC underlined that continued high inflation could destabilise inflation expectations and impair growth in the long term with inflation likely to remain above the upper level in Q2 and Q3. To keep inflation expectations anchored and contain the second-round consequences, "The MPC, therefore, determined that further calibrated withdrawal of monetary accommodation is required," he said.

The policy repo rate was thus raised by 50 basis points to 5.4 percent by the MPC. To ensure that inflation stays within the goal going ahead while promoting growth, the MPC also decided to keep concentrating on withdrawing accommodation," he added.

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