Bikky Khosla | 09 Aug, 2022
The RBI’s Monetary Policy Committee
(MPC) last week increased the repo rate – the rate at which the central bank
lends short-term funds to commercial banks -- by 50 basis points to 5.40 percent.
This is for the third straight meeting repo rate
has been hiked since May, leading to an increase by 140 basis points this
fiscal. No doubt, the central bank’s last week move can be seen as the
continuation of its fight against inflation.
The RBI Governor, commenting on these sharp rate hikes
that have come in quick succession, pointed out that inflation has remained at
7% which is unacceptably high. "Even according to our projections, they remain
above six percent for the first three quarters of the current year, the fourth
quarter projection is 5.8 percent," he added, viewing that at a time when globally
central banks these days are hiking rates by 75-100 basis points, 50 basis
points hike is the new normal.
Today, the Indian economy is better placed on inflation
than some major economies in the world and it seems the constant effort of the
central bank will help to tame inflation soon. In addition, the government has
recently taken various steps, like cut in taxes on petrol and diesel, curbs on
food imports and cut in cement prices. These measures will definitely help the
central bank’s fight against rising prices.
According to the RBI Governor, Rupee has been "faring much better than several reserve currencies as well as many
of its EME and Asian peers" and its depreciation is not due to weakness in India’s macroeconomic fundamentals, but mainly on
account of the appreciation of USD. But it seems that the central bank is still
concerned about the falling value of Rupee and it
wants to use interest rate hike also to protect the currency.
I invite your opinions.