Another increase in ‘repo rate’ by Reserve Bank is inevitable

Mumbai : As the inflation rate continues to rise, the Reserve Bank’s credit policy committee meeting, which began on Wednesday, is likely to increase the repo rate by at least 35 basis points. According to experts, the repo rate will be taken to the pre-coronavirus level only at the end of the current meeting.

The meeting of the Reserve Bank’s Credit Policy Determination Committee (MPC), which began on Wednesday, will continue for three days, and the decisions of the meeting under the chairmanship of Reserve Bank Governor Shaktikanta Das will be announced on Friday, August 5.

In the last three months, the Reserve Bank has hiked the repo rate twice to curb the alarming inflation. Complementary to liquidity conditions, the policy of conditional flexibility has also been tweaked by the central bank in recent years. The Indian economy is facing adversity in the form of a depreciating rupee due to aggressive interest rate hikes by central banks around the world to control inflation. Analysts have predicted that the RBI may increase the repo rate to 5.9 percent in the current year and to 6.15 percent by the end of 2023 in view of rising domestic inflation.

In the wake of external headwinds such as global supply chain disruptions and rising crude oil prices as a result of the Russia-Ukraine war, the Reserve Bank had promptly hiked the repo rate by 40 basis points ahead of a scheduled meeting of the monetary policy committee in May. The repo rate has been increased by half a percent to 4.90 percent in the month of June. However, the retail inflation rate was recorded at 7.01 percent in the last month, which is still below the RBI’s tolerance level. The current repo rate of 4.9 percent is still below the pre-coronavirus rate of 5.15 percent.

Working together against inflation

Union Finance Minister Nirmala Sitharaman said in the Rajya Sabha on Tuesday that the Reserve Bank and the Central Government are working together to control inflation and adequate steps are being taken to bring the inflation rate below six percent. She also said that the positive results of the various measures implemented by both parties will be seen soon.

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