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RBI hikes repo rate by 50 basis points
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IANS | 05 Aug, 2022
The monetary policy committee (MPC) of the Reserve Bank of India (RBI)
has unanimously voted to increase the policy repo rate by 50 basis
points to 5.40 per cent. Consequently, the Standing Deposit Facility
(SDF) rate adjusted to 5.15 per cent and Marginal Standing Facility
(MSF) rate and the Bank Rate adjusted to 5.65 per cent.
This
is the third consecutive rate hike by the central bank in this year
after a 40 basis points hike in May and 50 basis points in June. With
today's hike, the RBI has increased the rate by 140 basis points since
May this year.
All members of the MPC voted to remain focused on
withdrawal of accommodation to ensure that inflation remains within the
target going forward, while supporting growth. Prof. Jayanth R. Varma
expressed reservations on this part of the resolution.
Assessment of Growth and Inflation:
Domestic
economic activity is exhibiting signs of broadening. The monsoon and
the water reservoirs levels are above normal. On the demand front, the
urban demand is showing improvement, however, rural demand indicators
are giving mixed signs. Investment activity is also picking up as
capital goods production recorded double digits growth for the second
consecutive month in May and import of capital goods also witnessed
robust growth in June.
Whereas, on the other hand, the bank
credit growth has accelerated to 14 per cent as on July 15, 2022, from
5.4 per cent in a year ago period. Incoming data of corporates for Q1
indicate that sales and demand conditions and profitability of the
manufacturing sector remained buoyant.
The survey by the RBI,
manufacturing firms expect sustained improvement in production volumes
and new orders in Q2FY23, which is likely to sustain through Q4. At the
same time, the domestic economy faces headwinds from global forces -
geopolitical tensions, rising global financial market volatility,
tightening global financial conditions, and global recession risks.
The
central bank has retained its projection for GDP at 7.2 per cent, with
Q1 at 16.2 per cent, Q2 at 6.2 per cent, Q3 at 4.1 per cent, and Q4 at
4.0 per cent, with risks broadly balanced. Real GDp growth for Q1FY24 is
projected at 6.7 per cent.
On the inflation front, projections
for the 2022-23 remain unchanged at 6.7 per cent, with Q2 at 7.1 per
cent, Q3 at 6.4 per cent and Q4 at 5.8 per cent, with risks evenly
balanced. CPI Inflation for Q1FY24 is projected at 5.0 per cent.
In
June 2022, the headline inflation remained at or above the upper
tolerance band of the RBI for the sixth consecutive month. While looking
ahead the inflation trajectory continues to be heavily contingent upon
the evolving geopolitical developments, international commodity market
dynamics, global financial market developments and spatial and temporal
distribution of the south-west monsoon.
Incidence of unseasonal
and excessive rainfall, if any, can impact food prices, especially
vegetable prices. Greater transmission of input cost pressures to
selling prices across manufacturing and services sectors may also create
fresh price pressure.
Liquidity and Financial Market Conditions:
The
introduction of SDF resulted in withdrawal of accommodation by 130
basis points. With this, the yields on Treasury bills, commercial
papers, certificates of deposit and other short-term debt instruments
also rose.
The liquidity in the banking system has also moderated
in the banking system from Rs 3.8 lakh crore from Rs 6.7 lakh crore
during April-May. The sharp moderation in surplus liquidity from July 20
was mainly due to account of tax and capital outflows, resulting in
money market rates firming up above the repo rate.
During the
current financial year, the US dollar index has appreciated by 8 per
cent against a basket of major currencies due to which the Indian Rupee
depreciated 4.7 per cent. "Market interventions by the RBI have helped
in containing volatility and ensuring orderly movement of the rupee. We
remain watchful and focused on maintaining stability of the Indian
rupee," the Governor said in the statement.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
|
66.20
|
64.50 |
UK Pound
|
87.50
|
84.65 |
Euro
|
78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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