Tuesday, February 27

India cenbank raises key policy rate by 50 basis points

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BENGALURU — The Reserve Bank of India’s benchmark repo rate was raised by 50 basis points on Friday, the fourth straight increase in the current cycle, as policymakers extended their battle to tame stubbornly above-target retail inflation rate.

The monetary policy committee (MPC), comprising of three members from the RBI and three external members, raised the key lending rate or the repo rate to 5.90% with a five out of six majority.

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The standing deposit facility rate and the marginal standing facility rate were also increased by the same quantum to 5.65% and 6.15%, respectively.

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India’s annual retail inflation rate accelerated to 7% in August, driven by a surge in food prices, and has stayed above the RBI’s mandated 2-6% target band for eight consecutive months. COMMENTARY UPASNA BHARDWAJ, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI “Repo policy rate hike of 50 bps is in line with our expectations.” “Given the global adverse conditions, we remain wary on the pressure on (the) INR and hence the need for continued rate hikes.” “We expect the MPC to hike 35 bps in the December policy. However, with inflation expected to fall within 6% threshold in 4QFY23, we expect the MPC to probably pause and assess the lagged impact of monetary tightening.” MADHAVI ARORA, LEAD ECONOMIST, EMKAY GLOBAL FINANCIAL SERVICES, MUMBAI “This conscious front-loading could give them some breather next year on shallow hikes ahead. With inflation likely to be largely in line with RBI’s estimates, the hike will make the ex-post forward real repo rate positive, albeit still lower than the R BI’s estimated real neutral rate of 0.8-1%.” “At this point, we still think that the RBI would not go too restrictive and terminal rate could hover near the estimated real rates, implying not more than 100 bps hikes ahead, including today’s decision. However, the extent of global disruption will remain key to the RBI’s reaction function ahead.” GARIMA KAPOOR, ECONOMIST, INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI “Compelled by the global monetary tightening cycle and in a bit to rein in inflationary pressures, MPC announced repo rate hike by 50 bps. Going forward, the domestic policy may continue to be driven by the global monetary tightening cycle and aggressive stance of (US) Federal Reserve reducing our degrees of freedom.” “Assuming Fed funds rate of 4.4% by December 2022, we may see at least another 50 bps hike in remaining part of the current financial year, despite recent correction in commodity prices offering tailwinds.” (Reporting by Rama Venkat in Bengaluru; Compiled by Ne ha Arora)