While talking about RBI’s letter to the central government on inflation, he said, “If you see the legal provisions under the RBI Act, the MPC must have a meeting to discuss the RBI’s letter to the government. “We expect inflation to fall close to target over a two-year cycle. That was our expectation earlier and even now. But there are so many uncertainties that arise from time to time.”
The Reserve Bank of India (RBI) on Friday raised the key rate by 50 basis points to 5.90% in a bid to control inflation, which has remained above its tolerance level for the past 8 months .
With the latest hike, the repo rate or short-term lending rate at which banks borrow from the central bank is now close to 6%.
This is the fourth consecutive rate hike after rising 40 basis points in May and 50 basis points each in June and August. In total, RBI has raised the benchmark rate by 1.90% since May this year.
The six-member Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das came out in favor of the rate hike.
Inflation based on the consumer price index (CPI), which RBI takes into account when setting its benchmark rate, stood at 7% in August. Retail price inflation has dominated the RBI’s 6% comfort level since January this year.
The RBI’s latest action follows the third consecutive interest rate hike of 0.75 percentage points by the US Federal Reserve, taking its benchmark rate to a range of 3-3.25% earlier this month. .
The Reserve Bank of India on Friday cut the growth projection to 7% for the current fiscal year from the previous forecast of 7.2%, citing aggressive tightening of monetary policies globally and moderation in the request.
Unveiling the fifth monetary policy for this fiscal year, RBI Governor Shaktikanta Das said the central bank remained committed to price stability to put the country on a path of sustained growth.
Real GDP growth in the first quarter of the current fiscal year was 13.5%.
Das, however, warned that there was a third wave of shock triggered globally by an aggressive tightening of monetary policy to curb inflation.
RBI maintained its inflation projection for the current fiscal year at 6.7% amid global geopolitical developments triggered by the Russian-Ukrainian war.
RBI Governor Shaktikanta Das said the impact of inflation globally is weighing heavily on the domestic market.
For the September quarter of 2022-23, RBI forecast retail price inflation of 7.1%.
For the third quarter, inflation is estimated at 6.5% and lower at 5.8% in the March quarter with balanced risks, the governor said.
For the first quarter of next fiscal year, retail price inflation is forecast at 5%. On Friday, the RBI raised the benchmark repo loan rate by 50 basis points to 5.9%. The central bank has a mandate to keep retail price inflation within a range of 2-6%.
On foreign reserves, Governor Shaktikanta Das on said the central bank’s foreign reserve umbrella remained strong despite the uncertainty in the markets. He said the RBI has intervened in the foreign exchange market based on a continuous assessment of prevailing and evolving situations.
Das said about 67% of the decline in reserves in this fiscal year that began April 1 is due to valuation changes resulting from the appreciation of the US dollar and rising US bond yields. The governor said there was a $4.6 billion increase in foreign reserves on a balance of payments (BOP) basis during the first quarter of 2022-23.
??The other external indicators of India, namely the ratio of external debt to GDP; the ratio of the net external position to GDP; the ratio of short-term debt to reserves; and debt service ratio also indicate lower vulnerability compared to most other major EMEs6. In fact, India’s external debt-to-GDP ratio is the lowest among major EMEs. In the final analysis, we remain confident that we can comfortably meet our external financing needs,” Das said.
India has rebounded strongly from the coronavirus pandemic, but is now grappling with the same headwinds rocking the global economy.
“The global economic outlook continues to be bleak,” RBI Governor Shaktikanta Das said in a televised address.
Aggressive rate hikes and worrying comments from other major central banks posed a “third major shock” to the global economy in the wake of the pandemic and the war in Ukraine, he added.
“Recent rate hikes and expectations for further significant rate hikes have caused tighter financial conditions, extreme volatility and risk aversion,” Das said.
Anuj Puri, Chairman of ANAROCK Group, said: “The 50 basis point rise in the RBI was expected, especially as no global economy hinted at any moderation. Inflation continues to ravage almost every economy, and India is no exception. The consumer sentiment survey also found that at least 61% of respondents considered high inflation a major concern for them, severely affecting their disposable income.”
He added: “With this rise in repo rates, home loans will soon become more expensive. This could impact residential sales to some extent in the upcoming festive quarter, particularly in the affordable housing segments. and midrange.Rising home loan rates will be on top of other rising costs such as inflationary trends in construction input costs.With the overall cost of acquisition rising further, developers will need to seriously consider offering and targeted discounts to boost sales during the critical holiday quarter.
He said: “The silver lining is that it’s not until home loan interest rates break through the 9.5% mark that home sales will see a ‘high impact’. If rates stay between 8 .5 and 9%, the impact should be moderate.”