RBI’s third rate hike comes as part of its efforts to control inflation which recently hit a multi-year high, forcing the world’s major central banks to take that course.
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has decided to increase the repo rate – the rate at which the country’s central bank lends funds to commercial banks – by 50 basis points (bps) to 5.40% in its bi-monthly policy meeting, Governor Shaktikanta Das said on Friday. A basis point is one hundredth of a percentage point.
The RBI raised its policy rate for the third consecutive time.
The move is part of the RBI’s efforts to control inflation which recently hit a multi-year high, forcing the world’s major central banks to take the path of higher rates.
“MPC remains focused on pulling out of accommodation to ensure inflation stays on target going forward, while supporting growth,” Das said when the policy was announced.
With this rise, the repo rate is now back to pre-pandemic levels, the highest since August 2019.
After a long pause during the COVID-19 period, the RBI began the rate hike cycle in May this year with a 40 basis point hike in an unscheduled announcement. This was followed by another rate hike of 50 basis points in June.
The latest rate hike is largely in line with street expectations.
A CNBC-TV18 poll of economists and market watchers had predicted a 35 basis point rise. A majority believe the repo rate will be at 5.75% by December this year and will hit 6% by the end of this rate hike cycle.