The Reserve Bank of India-led Monetary Policy Committee increased the repo rate by 50 basis points to 5.4% to take it to the pre-pandemic levels, as the monetary authority seeks to bring down inflation to its comfort band and in line with policy tightening by key central bank.
- Standing Deposit Facility (SDF) rate was adjusted to 5.15%, meanwhile, the Marginal Standing Facility and bank rate were revised to 5.65%.
- The RBI Governor added that the MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.
- The policy rate increase by the MPC comes as an attempt to curtail the inflationary pressures faced by citizens on the back of high food and fuel prices following supply disruptions due to Russia’s invasion of Ukraine.
- The increase also comes after the Indian rupee’s plunge to an all-time low in July that further bumped up imported inflation.
- With RBI retaining the policy stance of “withdrawal of accommodation”, the implicit message is that rates are yet to reach neutral territory, and that more rate hikes are warranted – a view that is agreed with by economists.
- The RBI continues to signal that all options are on the table, which is a prudent strategy given the elevated levels of uncertainties on both, growth as well as inflation.
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