RBI hikes interest rate to 4.9% as inflation above tolerance band till December

Tribune News Service

Sandeep Dikshit

New Delhi, June 8

The Reserve Bank of India (RBI) on Wednesday hiked the repo rate or the interest rate at which it lends to banks by 50 basis points to 4.9 per cent. The RBI also hiked the marginal standing facility rate from 4.65 per cent to 5.15 per cent.

The second hike in as many months will put pressure on equated monthly instalments but will help gradually temper inflation that is eroding household savings.

The RBI’s Monetary Policy Committee, which made the recommendation, is now focused on “withdrawal of accommodation” instead of “remaining accommodative” as was the case till now. This means that the Central bank will set in motion policies that will tighten the easy lending policies that had prevailed during the pandemic.

Yet inflation will remain above the RBI’s upper tolerance band of six per cent till the third quarter of the current fiscal or till the end of December this year. Average inflation during fiscal 2022-3 will be above 6.7 per cent or in other words marks a failure of RBI’s monetary policy under the new framework. Even this 6.7 per cent is predicated on a normal monsoon and average oil price of $1 05 per barrel.

Das said about 75 per cent of the contribution to the high inflation rate is because of the food group.

The RBI retained its already-lowered real GDP growth expectations of 7.2 per cent down from the earlier 8.5 per cent.

While not listing out any specific steps, Das said the central bank would ensure the orderly implementation of the government's borrowing program. The RBI is watching the government securities market, he said.

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