India cenbank raises key policy rate by 50 basis points (updated)
05/08/2022 05:51
By Swati Bhat and Chris Thomas
MUMBAI, Aug 5 (Reuters) - The Reserve Bank of India's key
policy repo rate was raised by 50 basis points on Friday, the
third increase in as many months to cool stubbornly high
inflation.
With June retail inflation hitting 7%, economists polled by
Reuters had expected another rate hike, but views were widely
split between a 25 bps move or a 50 bps increase. urn:newsml:reuters.com:*:nL4N2ZD1IF
The monetary policy committee (MPC) raised the key lending
rate or the repo rate INREPO=ECI to 5.40%.
The Standing Deposit Facility rate and the Marginal Standing
Facility Rate were accordingly adjusted higher by the same
quantum to 5.15% and 5.65%, respectively.
The RBI caught markets off guard with a 40 bps hike at an
unscheduled meeting in May, followed by 50 bps increase in June,
but prices have shown little sign of cooling off yet.
With inflation seen holding above the top of the central
bank's 2-6% tolerance band for at least the rest of 2022, more
rate hikes in coming months are all but inevitable, economists
say. urn:newsml:reuters.com:*:nL1N2YT06W
The price spikes have hammered consumer spending and
darkened the near-term outlook for India's economic growth,
which slowed to the lowest in a year in the first three months
of 2022
"With inflation expected to remain above the upper tolerance
threshold in Q2 and Q3 of the current financial year, the MPC
stressed that sustained high inflation could de-stabilise
inflation expectations and harm growth in the medium term," RBI
Governor Shaktikanta Das said while announcing the policy
decision.
"The MPC therefore judged that further calibrated withdrawal
of monetary policy accommodation is warranted to keep inflation
expectations anchored and contain the second round effects," he
added.
Das said the decision to increase rates was a unanimous one.
Traders are now awaiting the RBI governor's comments on the
outlook for liquidity in the banking system and any hints on the
pace of tightening going ahead.
The benchmark 10-year bond yield IN065432G=CC climbed
after the RBI’s decision and was at 7.2317% at 0445 GMT. It had
declined to 7.1073% earlier on Friday after ending at 7.1516% on
Thursday.
The partially convertible rupee INR=D3 firmed slightly to
78.99 per dollar, from 79.16 prior to the policy decision. The
local unit had closed at 79.4650 in the previous session.
(Additional reporting by Nupur Anand; Editing by Kim Coghill)
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